Poll: Who looks at stress test results
There may be several departments in a financial institution that are responsible for portfolio stress tests: potentially the credit department, persons responsible for the institution’s financial statements, modeling teams and even vendor management if a third-party solution is used.
Reviewing the stress test reports could, similarly, be a responsibility that many people share. In a recent webinar hosted by Sageworks, attendees were asked who at their institution acts on or makes decisions based off stress testing results.
Thirty bankers, whose institutions ranged in size from $39 million to $35 billion, answered the poll question. Seventy percent said that the bank or credit union president acts on stress testing results after reviewing the institution’s potential earnings and capital during a stress-period. The second most common response was the Board of Directors, which was selected by 57 percent.
The institution’s ALM Committee received a vote from 50 percent of responding bankers, and examiners received a vote from 30 percent of respondents. Interestingly, less than 4 percent of respondents indicated that outside consultants act on the institution’s stress testing results.
Note, respondents could choose more than one option.
These different parties may use stress testing results differently, but in each case the goal is to mitigate potential risk for the institution. Institution-level or top down stress tests can be used to inform and influence portfolio management decisions, including concentration limits and pricing. Bottom up stress tests can also expose concenrations that might be over-exposed and can identify individual borrowers with the greatest risk of impairment in stress scenarios. Likewise, risk assessments drawn from most stress test analyses can help the institution avoid risk and improve risk rating strategies.
To read more about using stress test results, download our whitepaper on Actionable Stress Test Results for Community Banks.