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ComplianceMay 16, 2023

Maintaining portfolio health through tumultuous times


Credit risk is rising. Borrowers are defaulting. Banks are failing. And, to make matters worse, regulatory scrutiny is intensifying.

Unfortunately, today’s rigid and unreliable legacy lending ecosystem can’t help. If decision making remains slow and based on incomplete information, banks’ reputations will crater, or worse. Maintaining portfolio health has never been more daunting ― or critical. 

Relentless market forces

Rising interest rates

Because rising rates can simultaneously increase the cost of liabilities and decrease the value of investment securities held as assets, interest rate hikes have negatively impacted some banking investment portfolios. This, in turn, has led to funding challenges, earnings pressures and issues with capital, since even paper losses can have harmful effects on liquidity.

Mortgage upheaval

The ongoing acceleration of interest rates has forced a growing number of prospective home buyers out of the market, with mortgage demand declining to a 28-year low in March. Between March 2021 and January 2023, total mortgage originations plummeted by 83%, according to Black Knight. While government agencies like Fannie Mae and Freddie Mac are willing to buy riskier mortgages, many lenders are not inclined to originate them.

Flight to safety

The March failure of Silicon Valley Bank (SVB) took a profound toll on the banking industry. The collapse triggered a broad move by consumers to shift deposits to bigger ― presumably safer ― banks. On the heels of SVB’s disintegration, several additional small- to mid-size U.S. banks collapsed ― sparking a sharp decline in global bank stock prices and swift response by regulators in an attempt to thwart a domino effect from cascading across the entire banking sector.

Aggressive regulatory change 

Lenders are feeling angst over new rules on the horizon, such as modernized CRA regulations and Dodd Frank Section 1071 Small Business Reporting regulations. Additionally, in March President Biden called on financial regulators to toughen oversight of medium-size banks, which seeks to revive some of the requirements included in the 2010 Dodd-Frank law.

Internal deficiencies heighten compliance risk

Compounding the many disruptive market conditions faced by today’s lending organizations are a variety of internal struggles, most notably around efforts to manage compliance risk.

2022 Wolters Kluwer Regulatory & Risk Indicator survey results

Respondents cited the top obstacles to implementing an effective compliance program:

54% Manual processes
44% Inadequate staffing
38% Too many competing business priorities
60% unsure about their ability to maintain compliance with changing regulations

Continued reliance on manual processes is a primary factor that is tangling compliance administration. In fact, survey respondents revealed that this challenge represents their chief obstacle to implementing an effective compliance program.

Joint survey between Celent and Wolters Kluwer
Chief Risk Officers (CROs) cited improving consumer compliance as the top non-financial risk of the year. The banking community need to improve operational efficiency in order to increase margins and bottom line.

Even more, regulators are increasingly expecting enterprise-wide risk management programs to connect to different parts of an organization. Only in this way can banks ensure that the entire organization is moving forward to implement change in a consistent way.


Undeniably, banks are facing an unprecedented level of risk this year. To successfully navigate 2023’s perfect storm of relentless market and regulatory pressure, banks must closely monitor core lending operations while simultaneously and proactively minimizing risk. By addressing these key factors, banks can put themselves in the best position to maintain ongoing portfolio health and assure organizational success.

Learn more
On June 22, 2023, in partnership with American Banker Magazine, Wolters Kluwer will be hosting a live webinar on ways banks can overcome these lending and compliance challenges. Register now.

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