Loan Portfolio Stress Testing
ProBank Austin’s Capital and Loan Portfolio Stress Test enhances capital planning and credit risk management processes. Our Stress Test model is based on the Supervisory Capital Assessment Program (“SCAP”) and more recent Comprehensive Capital Analysis and Review (“CCAR”) format and framework created during the financial crisis by federal bank regulatory agencies. SCAP and CCAR quantify the effect of stressed loan loss rates on reserves, revenue and capital over a two-year horizon. We incorporate into our process regulatory guidance pertaining to commercial real estate (“CRE”) concentrations stating that portfolio stress testing may be accomplished by analyzing the potential effect of stressed loss rates on the portfolio, earnings, and capital.
ProBank Austin’s Stress Test includes customized scenarios, utilizing institution-specific data regarding historic loan charge-offs, target capital levels and core operating earnings. We can also incorporate loan level stress testing for specific “high risk” portfolios, including CRE, or subcategories, such as hotels and restaurants.
Regulatory agencies expect enhanced stress testing, with special emphasis on validating underlying assumptions. ProBank Austin’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. Information derived from these scenarios can then be factored into prospective contingency capital planning strategies.