Where to find data for stress testing
By Cathy Moore, director at Sageworks
In a recent post, we reviewed what types of data should be used in stress testing, whether the institution is using a top down or bottom up approach. But, where can the analyst find this data if it’s coming from disparate systems?
Key loan and customer information will often be found in the financial institution’s core operating system. For larger institutions using several core systems, integrating the data into a central platform may be necessary. It is critical to have codes built into the loan portfolio to filter various concentrations of loans and to provide granularity when stress testing loans with higher risk characteristics. If the data isn’t already available, financial institutions can start amending underwriting policies to ensure this type of loan-level detail is collected.
As mentioned previously, macroeconomic and regional or local economic data is useful for determining different stress scenarios for the financial institution. Data such as decline in appraisal values and cash flow data can be sourced from a financial institution’s internal data if they have it or from various external resources like REIS or Federal Reserve Economic Data.
For financial data, most institutions will source this information from credit files or a credit analysis or underwriting program. Institutions that rely on spreadsheet software programs like Microsoft Excel for underwriting and review may face greater obstacles, as the data is more difficult to retrieve and centralize, and it can be prone to more manual and formula errors than if the data were captured in the core or other automated software systems used for analyzing borrower financial data.
Institutions that use hard copies of the financial data or collateral documentation will also require additional work getting that data into a readable format.
To learn more about stress testing, download our recent whitepaper, Solving Data Challenges in Loan Portfolio Stress Testing.
Sageworks Stress Testing helps institutions perform bottom up stress tests on their riskiest concentrations. Watch a demo to find out more.