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Can You Quantify the Tipping Point?

Whether a Large SEC Filer, SRC, or privately held bank, you are likely or should be preparing for the onslaught of activities resulting from the current economic turmoil. Now that we have been in a worldwide pandemic for more than a month, all corners of the bank are being stressed, including resources, lending, systems, not the least of which your allowance and capital.

Historically, only larger financial institutions were required to perform quarterly stress tests as per regulatory guidance. In contrast, smaller institutions would often perform a more simplified analysis and in most cases on an annual or less frequent basis. Times have changed, and we are pleased to provide a bit more insight and share what we see in the industry as it relates to stress testing.

While the federal regulators have temporarily eased minimum capital limit ratios, the need for precision and more frequent analysis is higher than ever. Given the severity of our current condition, the Federal Reserve is set to publish worst-case scenarios, and 3rd parties are publishing new and updated economic forecast metrics daily. Despite the economic chaos, this is a prime opportunity to collect and leverage internally generated data, peer loan metrics, and external economic scenarios to evaluate impacts to your capital as well as for stressing your allowance and forecasting for CECL. 

Using current external metrics, the Valuant (Peer) Index, and your internally sourced data, we can help you identify and quantify loan portfolio risk by using complex scenarios that cover both individual stressors and combinations of different events.   

More comprehensive and frequent stress tests are necessary to assess capital adequacy and allowance levels accurately.  With the challenges financial institutions are facing working remotely as well as responding to the needs of borrowers, Valuant’s Client Service team is available to serve your quarterly Stress Test needs.

For more information, contact us.

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As part of an annual study that began in 2020, Valuant conducts analysis on ASC 326, commonly referred to as “CECL”. The study contains key data statistics and insights around the US Regional and Community Banking sectors and the impact CECL has on their Allowance for Credit Loss (ACL) Coverage Ratios.

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