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Why technology is needed for stress testing

June 2, 2014
Read Time: 0 min

Shifting regulatory demands often have direct impact on banks and their use of technology and innovative processes. The next shift is around stress testing, according to a recent article by American Banker’s Penny Crosman

A general theme coming from bankers and consultants that attended the American Banker Stress Testing 2014 conference last month was that banks of all sizes will need to continue to invest in technology to improve data management, process documentation and stress test models.

The attention and requirements for stress testing are increasing for banks of all sizes. For example, banks have historically tracked loan losses on the portfolio level. But now, tracking individual loan performance over time is becoming the norm. Regulators are asking banks to predict risk of individual loans, not just portfolios, for analysis with the ALLL, risk rating and portfolio management.

Crosman notes that a major challenge accompanying many of the regulatory changes is data management, with financial information, loan-loss data and compliance data all stored separately in different silos. “Stress tests require synchronized data from all three sources.”

In addition to data silos, just gathering the data for stress testing within those silos is a unique challenge for banks, as the data requirements are different from those for calculating loan losses, according to Shaheen Dil, managing director at Protiviti.

Bankers need a way to not only gather and store that data, but also a system to access and manage it over time.

Furthermore, regulators are asking banks to provide extensive documentation to support their stress test results; just the raw numbers in the analysis won’t be enough. “If you don’t have documentation, from the point of view of the [examiner], it doesn’t exist,” said Ed Schreiber, chief risk officer at Zions Bancorp.

Investing in a flexible stress testing solution that easily archives data will save bankers in the long run. Without that kind of investment and attention, bankers could face higher losses, higher costs and pressure to hold more capital, according to Schreiber.

Sageworks Stress Testing allows banks and credit unions to satisfy examiners by stressing their portfolio, concentrations and individual loans to better identify risk and assess impact stressed scenarios would have on their earnings and financial statements.

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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