Prepare Now: FDIC Stress Testing Requirements Affecting Community Banks

Since the 2008 financial crisis, the FDIC has mandated that banks holding over $10 billion in assets must have robust stress-testing practices in place to prove they are prepared for risk. The stress-testing requirement has started to trickle down to banks with fewer than $10 billion in holdings. If your small financial institution or credit union has not yet been affected by the stress test requirements, you will soon. Learn how to leverage technology to remain compliant with FDIC mandates.

FDIC Rules for Stress Testing

In 2008 and 2009, scores of financial institutions failed because they were overextended financially. Going forward from the economic recession, the FDIC developed a stress testing requirement to ensure that financial institutions understood their financial risks and how stressful world events may impact the bank’s stability.

In the stress testing process, financial institutions must undertake a forward-looking (i.e., stress test ADC) assessment to identify areas of vulnerability and evaluate how a set of events or circumstances would affect the bank’s assets. In doing their assessment, banks must gather facts, demonstrate reasonable assumptions, show their methodologies, and commit to taking action to reduce the risks and vulnerabilities found in assessment.

The process of evaluating all potential risks and outcomes is very time consuming, so the FDIC’s stress testing requirement is rigorous. Many financial institutions struggle to keep up with these requirements. Historically, the software that streamlines stress testing for financial institutions has been too expensive for smaller banks. Only the largest financial institutions could afford to invest in the software that makes stress testing on a large scale viable.

While the original stress testing requirements only affected banks with total consolidated assets over $10 billion, smaller banks may be asked to undertake stress testing as well.

How Banks Can Show Compliance With Stress Testing Requirements

CLOUDecision Advanced is a scalable software solution that can help banks demonstrate their compliance with the FDIC’s stress testing requirements. The risk management software is regularly updated as FDIC regulations change, so your financial institution never has to worry about being out of date with stress testing or reporting capabilities.

Using the software, bank employees can perform stress tests, slice and dice the data, analyze shock tests, check high-risk loans or industries, and put together reports for managers, boards, and key stakeholders. The software gathers real-time data and allows advisors to make actionable decisions using up-to-date data, protecting the bank’s assets from excess risk.

CLOUDecision Advanced provides an easy-to-use, affordable solution for banks of all sizes. To learn more about the features of CLOUDecision Advanced, sign up for a free demo.