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Why is stress testing important?

Mary Ellen Biery
April 28, 2013
Read Time: 0 min

The thesis from regulatory bodies these days is that every bank needs to stress test their loan portfolio, but many financial institutions continue to seek guidance on what stress testing is and why it’s important.

Stress testing is a best practice for banks that demonstrate proactive and progressive improvement, according to Mike Lubansky, director of consulting services at Sageworks.

“Stress testing can be an exercise and process to help bankers make better, more informed credit decisions, to look at different scenarios and to evaluate and understand the risk potential and vulnerabilities in the portfolio,” Lubansky said, speaking recently at a conference of federal bank examiners from the FDIC, OCC, NCUA and the Federal Reserve.

Speaking at the Supervisory Updates & Emerging Issues Conference for Community Financial Institutions in Washington, D.C., Lubansky said the process of stress testing also creates a set of data to support conclusions that may help financial institutions identify areas of extra risk in their portfolio.

In addition to describing the strategic benefits of stress testing, Lubansky provided information on top down and bottom up stress testing and common data challenges experienced by financial institutions.   

To see a similar presentation by Lubansky, access our on-demand webinar: Stress Testing the Loan Portfolio.

About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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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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