Enhance your capital planning and credit risk management processes with ProBank Austin’s (“ProBank”) Capital and Loan Portfolio Stress Test. Our model leverages the stress test framework created by bank regulatory agencies during the financial crisis. ProBank’s Stress Test has been customized for community banks to measure the effect of stressed loan loss rates on reserves, revenue and capital over a two-year horizon.
Given the current environment, regulatory agencies will likely expect enhanced stress testing, with special emphasis on validating underlying assumptions. Our Stress Test utilizes institution and peer charge-off data, along with core earnings, to project regulatory capital levels under a Budget, More Adverse and Acute Scenario. Resulting capital ratios are compared to internally established target capital ratios to determine capital adequacy under stressed conditions. We can also incorporate loan level stress testing for specific “high risk” portfolios, including CRE, or subcategories, such as hotels and restaurants.
ProBank’s Stress Test determines the potential impact on bank capital levels in the event of a short-term market shock or unanticipated deterioration of the loan portfolio based on economic and market conditions. This process can also facilitate tying the identified credit and concentration risks into the bank’s strategic, capital and liquidity contingency plans.