After a bank loans money to a borrower, bank keep tabs on the borrower’s finances, covenants, and reporting to review the loan risk and exceptions.
The US Department of the Treasury's Office of the Comptroller of the Currency requires nationally chartered banks to create policies, procedures, and data that form "the foundation for credit risk measurement, monitoring, and reporting" and support decision-making. Because of this regulatory requirement, bankers routinely enter all the monitoring items in loan agreements.
Tracking the aggregate level of LOAN exceptions helps detect shifts in the risk characteristics of loan portfolios.
When viewed individually, underwriting exceptions may not appear to increase risk significantly. However, when aggregated, even well mitigated exceptions can increase portfolio risk significantly.
Over time, the analysis of aggregate exceptions will enable a bank to correlate particular types of loan policy exceptions with a high probability of default.
Since effective exception tracking systems facilitate better risk management, banks are encouraged to establish these systems and to improve them when they can.
Banks require to schedule future document-request dates includes a description of the document requested and its frequency (e.g., annually, quarterly, monthly). Loan risk and compliance is monitored with financial and reporting data collected from borrower.