ABA Banking Journal - November/December 2015 - (Page 36)
> STRESS TESTS
Feeling the Pressure?
Community bankers are being urged to stress test their
portfolios. Here's how they're making the most of it.
BY EVAN SPARKS
n 1928, a pair of heart researchers conducted an
experiment. They took several patients with a history of
clogged arteries, wired them to an electrocardiograph
and asked them to do sit-ups until it hurt. In some
cases, the researchers even pushed down on
the patients' chests to make them work harder.
The result: for the first time the ECG showed a clear
pattern of reduced blood flow from the heart as the
patients worked harder. The ECG allowed the researchers
to identify with greater precision just how clogged a
patient's arteries were-and how it would affect his
life. It was the first deliberate "stress test," and it
became a fundamental diagnostic tool of cardiology.
Nine decades later, it's bankers who are wired up and
sweating through crunches. According to a recent
survey from SageWorks, nearly six in 10 depository
institutions are stress testing themselves in some
way. An additional 18 percent had been asked by
their examiners to start stress testing; just a quarter
of institutions reported no pressure to stress test.
ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2015
Large financial institutions have been stress testing
themselves for more than a quarter century, and certain
community banks have been stress testing in some form
since 2006, when regulators issued guidance on managing
concentrations in commercial real estate that included
stress tests. But while few institutions face the mandatory
and complex stress testing processes for the largest
banks, many bankers note that regulators are increasingly
encouraging smaller banks to use stress test methods.
To cope with these increased pressures, bankers are
trying to find the best way forward, identifying test
methods that work for their institution, finding partners
to smooth the process and making the best of it by
integrating their test results into business planning.
When regulators 'recommend'
Conversations with bankers confirm the survey results.
Examiners from the Federal Reserve recommended
stress testing as a "best practice for a bank with
our kind of profile," says Will Chase, president
and CEO of the $520 million Triumph Bank in
Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2015
A Conversation With the Comptroller
Cover Story Doing the Right Thing
Big Data and Predictive Analytics: A Big Deal, Indeed
Stress Testing: Feeling the Pressure?
ABA Compliance Center Inbox
Cybersecurity Self-Assessment Tool Helps Combat Risk
Real Estate Lending
Banker Recommended Reading
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2015