Summary

Bank directors are responsible for asset quality and for ensuring their banks maintain an adequate reserve to absorb loan losses. To do this, you and other board members should establish a policy to guide the bank’s lending activities. Additionally, you should put in place policies and processes to determine probable loss in the loan portfolio and to maintain an adequate reserve to cover these losses. Finally, you should monitor asset quality and the adequacy of the reserve to ensure that policies in place are effective in preserving bank asset quality and cushioning the bank against foreseeable losses.