What are Exception Thresholds?
In banking, exceptions are items that require action because they fail to meet certain predefined criteria. An exception threshold is an upper or lower limit (typically numeric) at which point exception-related requirements no longer exist. When properly tracked and monitored, exception threshold data can help financial institutions improve the accuracy of exception reports, avoid unnecessary administrative work and, ultimately, deliver better experiences for customers or members.
Example: Exception Thresholds and Commercial Credit
Banks and credit unions involved in commercial lending must regularly collect credit documents from borrowers. Depending on the financial institution’s lending policy, such documents may not be required from all borrowers in all circumstances. For example, a loan policy might call for less documentation from borrowers with small equipment loan balances compared to corporate customers with large commercial real estate loans.
Borrower loan balance and commitment amounts are essential information, but other factors also influence exception thresholds:
- Document type
- Pledged collateral
- Borrower credit risk
- Relationship
- Commercial portfolio size
Approaches for Managing Exception Thresholds
Tracking exception thresholds in spreadsheets is feasible but complicated due to the aforementioned dependencies and dynamic nature of banking. Loan balances are not static, so manually entered data quickly becomes irrelevant.
Due to this tracking complexity, exception thresholds are routinely ignored by banks and credit unions. This leads to an overly conservative approach and, oftentimes, inflated exception reports. In the case of commercial credit exceptions, borrowers may be asked to provide unnecessary documentation—leading to friction with customers or members.
Utilizing an ECM with built-in exception tracking, such as AccuAccount from Alogent, offers a scalable way to manage threshold-related requirements. Core data feeds bring in loan balance and commitment information into AccuAccount, saving time and improving data accuracy. Configuring exception filters in AccuAccount makes it possible to disable exceptions when amounts fall below desired thresholds. Continue reading about Alogent’s exception tracking solutions.
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