UNLESS YOU’VE BEEN HIDING UNDER A ROCK, you know that redlining is a key focus of the regulators in 2017. Redlining is the practice of discouraging applicants or deny- ing loans in specific geographic locations. This article discusses one aspect of how a bank
should asses its redlining risk, by analyzing its lending practices in comparison to its peers.
Defining your peers is important to your redlining analysis because your peers list may show that
your bank is not pulling its weight with respect to
applications or originations in minority or low and
moderate income neighborhoods. The suggested
methodology in this article may not be the only
way to identify your peers, but it may be useful at
least as a starting point.
Our experience when working with clients is that
when we ask banks for peers, they respond with all
banks within a geography, some of the banks within a
geography, or just a random list that perhaps the mar-
keting department supplied. In most cases, the lists
are not derived in any thoughtful way. Furthermore,
there is no rational methodology behind choosing
the banks included on the list, and hence, the list is
not very valuable to the regulator. One alternative
to this approach to identifying peers, is to let regula-
tors do it for you. But, who is best positioned to put
together your peer list? You or the regulator de jour?
Let’s start with a discussion about what is redlin-
ing, explore current methods of selecting peers,
and conclude with examples of different
peer selection methods.
Assess Redlining Risk
by Analyzing Peers
BY ARTHUR R. PREISS, PH.D. AND PHILIP B. PREISS