Credit Committee

A credit committee is a group of people who review and vote on loans that are too large or too risky for one person to approve alone. At a bank or credit union, the committee may include senior lenders, the chief credit officer and, for the largest loans, board members. At a smaller lender or a community development financial institution (CDFI), it may mix staff with outside volunteers who have lending experience.

Most lenders use a ladder of approval authority. A loan officer may approve small, standard loans within policy. A senior credit officer handles larger ones. The committee takes the biggest loans, any policy exceptions and loans to insiders, such as board members or staff. The lending policy often spells this out as an approval matrix.

At many banks, the board's credit committee also sets the wider rules. It approves lending policy, sets risk limits and reviews how the loan portfolio is performing.

Why it matters for lenders

US bank examiners describe three kinds of lending authority: individual, joint and committee. Each has trade-offs. One person can decide fast and is clearly accountable, but can make costly mistakes alone. A committee brings more knowledge to the table and builds a shared credit culture. But it can slow decisions and blur who is responsible.

Committees also help manage conflicts of interest. When a loan goes to a business tied to a board member, a vote with that member stepping out protects the decision. CDFI funders and investors often look for clear rules on insider loans.

The risk is that the committee becomes a bottleneck. If it meets only twice a month, a good deal can wait two weeks for a vote. Some lenders allow electronic votes between meetings, as long as their policy permits it.

How it works in practice

A CDFI's credit committee meets every other Tuesday. Before each meeting, the lending lead sends a packet. It holds the credit memo for each loan, the proposed risk rating and a short report on how the new loans would change concentration risk by industry.

At the meeting, the underwriter presents each deal and answers questions. One member asks for a tighter covenant on a restaurant loan, and the committee approves the loan with that condition. A board member whose cousin owns the business steps out for that vote, and the minutes say so.

In many shops, the vote then lives only in meeting minutes or an email thread. Servicing may never learn about the new covenant. A better setup records the vote, the conditions and any recusals right on the loan. That leaves a clear audit trail and shows the next team exactly what was approved.