Raising a Strong Credit Culture

A few weeks ago, my son got his first tricycle. After pedaling along the sidewalk, we stopped to learn about how to cross the street. He is two years old and not likely to be left unattended any time soon, but as anyone with children knows, it takes a lot of repetition to ensure he really “gets it.” I talked with him about first looking left, then looking right, and then always holding my hand to cross to the other side. We practiced it a few times more and then I let him return to riding his tricycle—his reward—since he is two, after all.

Yesterday, before we reached the end of the sidewalk and I could prompt him, he started saying, “Look left, look right, hold on tight!” This gave me confidence that he is internalizing the lesson and will remember it down the road, when I’m not there to supervise him. Of course, the end goal is to give him the skills and independence he needs to make the right decisions in a challenging environment.

In many ways, raising a child is a lot like cultivating an effective credit culture within your financial institution. To develop a strong one, it takes a lot of patience, nurturing, and a deep understanding of the institution’s unique personality. Ultimately, it isn’t hard to do because it is technical; it is hard to do because it requires discipline and absolute commitment to consistency across all communication, training, rewards, metrics, and most importantly, leadership. This is similar to how my spouse and I try to use similar approaches in our parenting so that we avoid sending mixed messages that can hurt our credibility. The expression “brutal consistency breeds believability” could not be truer for parenting or corporate leadership.

Yet this kind of disciplined commitment is the foundation of any institution’s credit risk management: a strong credit culture is what empowers employees to act consistently and in the spirit of its policies and expectations. “It provides lenders and credit approvers with a shared compass for navigating through gray areas, and helps maintain a balanced approach for prudent decision-making as the market ebbs and flows,” says Sageworks analyst and director of advisory services Tim McPeak.

So, it’s fair to ask, how does an institution achieve the level of consistency needed to transform a culture, when there are so many more variables, challenges, and complexities in the lending and credit environment?

Well, the good news is that we were not raised in a day. Though your culture encompasses many behaviors and beliefs, it is best to not try to change or implement too much at once. As McPeak says, “It is more effective to focus on a single behavior or two that stands between you and your goal.” With a honed focus in mind, the following four components can transform your institution’s credit risk culture by teaching a set of integral practices that, when used consistently, yield an effective result.


This is the starting point, where the “Mom” and “Dad” of the institution set priorities and common vision. Leadership must develop a clear charter that defines the imperatives of the desired credit culture and how they support and interact with management’s goals. Describing how you will balance management priorities is key. “Achieving long-term asset quality, profitability, growth and shareholder value while balancing disciplined credit risk processes, policies and controls can be a challenge,” according to McPeak. In this phase, leadership must build consensus around the vision, remove any obstacles and resolve any resistance from those responsible for providing the necessary rewards or consequences. This is the group that will spread the common message, enforce accountability and show unified leadership by communicating the same way publicly as privately.


The first step in communication is clearly articulating the vision of what the institution’s credit culture will look like when done right and how it will be observed or measured. The message is not positive or negative—it is simply a clear contrast between the current state (that is no longer sufficient) and the desired state. Since beliefs drive behaviors, you must surface and correct any assumptions or beliefs (“We already do this”) that drive old behaviors. Clear, ongoing communication is vital to reinforcing a shared understanding of the new expectations and what success looks like for a financial institution.  


For any kind of change to be successful and lasting in your institution, it must be process focused. That means the new, desired behaviors (the risk controls that identify, monitor and manage assumed risks, e.g., loan policies, approval process, loan reviews, etc.) must be defined and put into context. And since process always functions within a structure (i.e. people), every role in the structure must have the skill set needed to perform the process. Training is how you provide this skill set to your credit staff to ensure the process is carried out consistently and in the spirit of the culture. As new hires join and are trained, the culture becomes “just what we do.”


Attaching performance rewards and metrics to the new process creates discipline and accountability throughout the organization and retains the new behaviors. “It is important to set goals that align everyone’s interests, while focusing on long-term success of the institution,” according to McPeak.

These aspects comprise the toolkit needed to build a strong credit culture. Yet, just as with  parenting, defining the values you wish to instill in your institution is the first step towards the future.

Ancin Cooley is principal of Synergy Credit Union Consulting and a former OCC regulator. Contact him at Sageworks is a financial information company and creator of the Business Credit Report.

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