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How community banks can build positive relationships with examiners

July 26, 2014
Read Time: 0 min

For community banks, making the transition to stress testing on a regular basis can be viewed as a challenge. The phrase alone brings to mind examinations, which, at the very least, can be anxiety-inducing for even the most organized of bankers and their institutions, particularly at the community bank level. Since the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, many community banks have seen value in stress testing that goes beyond just checking a box ensuring compliance—they’ve also found it beneficial for overall portfolio risk management. Running these risk scenarios gives community banks a more solid understanding of vulnerabilities within their institution, which, in turn, offers the opportunity to make changes in advance of actually experiencing the stress. However, the stress testing process can seem cumbersome to financial institutions with limited resources.

Aside from the benefits to a bank’s larger strategic risk management plans, another gain community banks obtain from stress testing is fostering a more positive relationship with examiners. Stress testing builds confidence in the financial institution’s overall risk management strategy, which can alleviate some of the apprehension traditionally associated with examinations. Offering a sound roadmap and getting ahead of regulatory requirements ultimately pave the way to a successful financial checkup.

Here are three tips to building a better relationship with examiners through stress testing:

1. Stay organized – Create a checklist of the documentation needed to prepare for the examination well in advance, and then assign action items to relevant colleagues with appropriate deadlines. By making early organization a priority, the process can move more smoothly.


When ready to move on to the next phase of preparation, Sageworks Stress Testing offers an easy and efficient way to organize the process. In addition to integrating with each bank’s individual platform for ease, the solution also provides documentation needed for examinations.


2. Show your work – Utilizing an automated platform, such as Sageworks Stress Testing, for the back-end work allows more time for analysis and to better prepare for the stress audit. A common question asked by bank examiners is, what’s the rationale? Examiners are routinely impressed with institutions that have documentation to defend their stress test results, and have thought through their plan of action moving forward. Remember that the goal is not only to pass the examination, but to improve the bank’s management of risk and preparedness.


3. Be frank – During examinations, the examiners are looking for cold, hard facts. Check emotions at the conference room door. Examinations are certainly a stressful experience, but keeping a cool head will serve one well. Feel secure in being prepared, and remember the old adage – honesty is the best policy.


By following these simple suggestions, community banks work towards building a more positive relationship with their examiners. With that in mind, along with the ultimate goal of improved risk management and effectiveness, stress testing can be viewed as less of a burden on community banks, and more of a beneficial practice.


For more information on stress testing for community banks, download this complimentary whitepaper: Actionable Stress Test Results for Community Banks.


About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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