Taking a Common-Sense Approach to Commercial Loan Stress Testing
Sheshunoff Consulting & Solutions
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Austin, Texas 78746
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The initial reaction to reading the above headline from a number of bankers will be: “There’s no common sense involved in stress testing. Why do I need to do it? It’s not applicable to my institution … and even the big banks can’t get it right.”
Unfortunately, stress testing is here and now for financial institutions, and not just for the $50 million or $10-plus billion ones – and it’s not going away. Both the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have stated that stress testing is required, even for the smaller institutions (Credit Unions are still only required to do so at the $10-plus billion level). In a speech delivered electronically to the Independent Community Bankers of America Annual Conference on March 4, 2014, Thomas Curry (Comptroller of the Currency, spoke on a number of topics, including stress testing. On this topic, he said: “I can’t think of a more fundamental risk management practice than subjecting your credit book to rigorous testing.”