As geopolitics, trade policy, supply chains, interest rates, or any yet undetermined test lurking around the next corner challenge banks over ever-shifting timelines, today’s leaders are reexamining how they define, measure, and govern concentration and credit exposure.
The result is renewed focus on concentration limit frameworks—not just as a defensive tool, but to balance risk and growth.
“Start early with the conversation about how much you’re willing to put at risk. How much is the board willing to lose from any one event, whether it be a single credit event or any type of event?” said Jim Lentino, chief risk officer at Wintrust.
A foundational, governance-first approach was a central theme during a ProSight Annual Risk, Compliance & Fraud Virtual Conference discussion on concentration and portfolio management. Concentration frameworks break down when limits exist on paper yet are not anchored in loss tolerance and tested against tail outcomes, Lentino and two other risk professionals on the panel stressed.
In their view, the work starts with the losses that boards and management are prepared to face from a lone event and continues with translating that tolerance into actionable limits and escalation triggers.
“No matter how good the underwriting of your firm is, no matter how good your ongoing monitoring is, no matter how good your loan review is, the fact is that concentrations kill,” added Lentino.
Creating the fullest risk picture possible should be a priority, said panel participant Walter Galloway, director of credit analytics and strategy at Comerica.
“Making concentration limits workable depends on reliable data. You can’t understand, assess, and react to your own balance-sheet dynamics if you don’t have clean, reliable, accessible data,” he said. “Data availability, in fact, data quality, is top of my list.”
For U.S. regional banks in particular, risk mitigation also means expanding the set of tools used to manage concentrations, said Mary Young, senior vice president and head of credit portfolio management at Regions Bank.
Young pointed to insurance, synthetic securitization, and private credit partnerships as options she believes too many banks still underutilize. “For regional banks in the U.S., the biggest action may be to explore those tools,” she said. With conditions shifting quickly, Young added, “it’s impossible to predict and time the market. We just need to be prepared and protected.”
Those perspectives converged around a shared concern: The speed at which concentration and credit risks can now surface leaves little margin for error. Lentino pointed to the 2023 Silicon Valley Bank failure as a clear illustration of that expediency change. Comparing that episode to the debilitating deposit runs on Wachovia and Washington Mutual in 2008 demonstrates how dramatically the pace of risk realization has accelerated. Wachovia and WaMu each lost “about 10% of their deposits over a two-week period,” Lentino said. “With Silicon Valley, we saw them lose 40% of their deposits within 48 hours.”
The compression of time, he suggested, fundamentally challenges governance frameworks, which tend to be built around static assumptions or infrequent review cycles. Concentration risk, in that environment, is less forgiving of delayed recognition or slow escalation.
AGILITY TO RESPOND
At Wintrust, Lentino said, speed reality has reinforced the need to balance formal structure with flexibility. While the bank updates its risk appetite framework on a defined annual cadence, it remains prepared to adjust outside that cycle as conditions evolve. “The environment changes, things shift, and you’ve just got to be prepared to move on an interim basis,” he said.
Young described a similar emphasis on responsiveness, using concentration limits not only as guardrails but as communication tools. “Our limits are dynamic month to month throughout the year,” she said. “Not a lot, but enough to send a risk signal to the line that something has changed since we locked arms with the recalibration, and that behavior might need to change.”
Signaling functions become increasingly important when external conditions change faster than planning cycles, Young said. Rather than waiting for formal limit breaches, dynamic adjustments allow risk teams to influence behavior earlier, while mitigation options are still available.
Galloway pointed to technology and data as critical to supporting that level of responsiveness. “AI is going to allow tool usage in this concentration space and the speed and affordability of external data to be ingested more easily, and for more-robust frameworks to be built from,” he said. Ultimately, he added, “the concentration component matters, and it’s the unpredictable event that we’re really guarding against.”
PREPARARTION AND TESTING
Galloway also cautioned against focusing too intently on identifying the next specific tail event. Instead, he emphasized assessing what could happen if a severe but unpredictable shock were to occur. The more relevant question is whether a tail event, whatever its source, could disrupt a large portfolio to the degree it will introduce material earnings volatility, he offered. At a high level, the task is not to dictate the trigger, but to understand how concentration levels would behave under extreme conditions.
Conference panel discussion returned repeatedly to first principles: clarity around loss tolerance, visibility into evolving exposures, and the ability to act before risks crystallize. Concentration frameworks, the risk professionals suggested, are most effective when they operate on the same time horizon as the risk itself.
For Lentino, all such elements—governance, interim adjustment, data, and tools—ultimately come back to validation. He urged banks to get specific about loss tolerance, such as with: “a quarter’s worth of earnings… some percentage of capital… or some absolute dollar amount.”
Banks can then pressure-test whether exposure remains consistent with those bounds. His bottom line: “Stress testing, stress testing, and stress testing, which gives your organization the best chance to better identify, measure, monitor, manage, and report potential concentrations.”
