Quality of Risk Management: Risk Reporting, Management and Compliance

FDIC stress testing regulations affect banks that hold over $10 billion in assets. Yet if you think your community bank is immune from having to put stress-testing measures in place since you hold fewer than $10 billion in assets, think again. The reality is that stress testing is critical for banks of all sizes to know and avoid unnecessary risk. Bank examiners have begun approaching banks holding less than $10 billion about implementing stress-testing measures. Could your bank be next?

How Stress Testing Affects Community Banks

Stress testing helps lenders to see a full portfolio of their risk and put safeguards in place to minimize potential loss. Proper stress testing procedures ensure loan portfolios are healthy and the bank is not in an unstable position. After the recession, it’s crucial for banks of all sizes to manage risk efficiently.

Stress testing is critical for commercial real estate (CRE) loans, yet few guidelines exist that inform banks how to test CRE loans. As a result, many financial institutions want to perform stress tests, but aren’t sure how to effectively measure risk.

Existing guidance around CRE lending is geared toward banks that specialize in CRE loans from 100 to 300 percent of their risk-based capital, rather than lenders that make the occasional CRE loan. Lenders that demonstrate acceptable risk management practices can continue to make CRE loans at a high level, while those that do not manage risk appropriately may be required to make changes to reduce their risk exposure.

Putting the right stress-testing measures into place now helps community lenders comply with the regulations that protect their health, even if they currently aren’t mandated to do so. Since bank examiners are turning to smaller lenders, regulators are likely to lower the $10 billion amount and mandate stress testing at smaller banks. Community lenders who act now can position themselves to comply with future regulations while being able to protect their assets.

How Community Lenders Can Get Compliant With Stress Testing

Large banks rely on analytic software to streamline reporting and compliance. However, the software used by big banks can be too costly for community lenders to implement. CLOUDecision offers an on-demand platform that can save community lenders tens of thousands per year over expensive legacy software.

Using CLOUDecision Advanced, lenders can perform stress testing and risk management of all assets, including CRE loans. The software helps banks identify inconsistencies and vulnerabilities, which they can fix to comply with regulations.

To learn more about how CLOUDecision can help your bank become compliant without question, contact us today.