Too much authority was designated to the Group Credit Committee.

In addition to the defective risk

management function, the GCC, which is primarily tasked with dealing with the most significant credit
proposals, too much authority was designated to the said committee, depriving other supervisory
functions supposedly for the executive management.

In the banking industry, risk management and internal control are critical. Wellfleet
Bank implemented the Basel II Accord, and recommendations, as required by the Basel
Committee on International Settlements, codified its risk-management methods. The reserve
capital is tracked and managed to reflect the riskiness of the company's operations. Within
Wellfleet Bank, the internal control system balances function between relationship managers
and risk officers. Relationship managers court clients and bring in business and income for the
bank through margins and fees. They want their bids to be approved so that they can receive
their rewards. In the meantime, risk officers would conduct an independent risk analysis to
identify the proposal's internal risk and make reward characteristics explicit. Risk officers would
hold or reject bids with the inherent risk that exceeds criteria and procedures. A hierarchy
structure occurs within the risk-management function, based on credit officers' particular
experience. The credit officer is the lowest level, with authority to sign off on specific business
proposals. The more experience a credit officer has, the riskier the loan becomes, and larger
loans may be approved. If a loan exceeds a credit officer's limit, it should be forwarded to a
regional credit officer for approval. At the top of the organization, the Group Credit Committee
has public decision-making authority over any loan that falls within the bank's statutory
restrictions. The Group Credit Committee comprises three senior members representing the
business perspective: the group chief credit officer, the chairperson, the deputy chief risk
officer, and the group head of client relationships. This committee structure ensures that the
decision-making process is a balance of credit and relationship functions. As a result, any credit
proposal that is too large must first be approved by the Group Credit Committee. Aside from
the Group Credit Committee, seven additional risk committees deal with market risk,
operational risk, compliance risk, nation risk, reputation risk, and business risk. Under the
supervision of the Group Risk Committee, these eight risk committees provide quarterly risk
reports. The board-level Audit and Risk Committee receives a report from the chief risk officer.
The first issue arises from the credit function's hierarchical nature. The "Alpine Pass" approach
to relationship managers wastes time and lowers the efficiency with which they serve their
clients. It will take longer than necessary to close a contract if a proposal with known
characteristics must go through the basic levels before reaching the Group Credit Committee
for final approval. This inefficiency will make the bank less appealing to potential customers and
less competitive with competing banks. One approach would be to develop a balanced decision
structure based on proposal criteria such as loan amount, applicant company size, and
applicant history records. While credit officers could sign off on minor loans made by a small
business with acceptable credit, large loans made by a large company with lousy credit could go
straight to the Group Credit Committee.