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Stress Testing - How to Get Started

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Question: 
Our primary regulatory wants us to stress test our commercial and consumer loan portfolios. What should we be thinking about to get started?
Answer: 
  • The most common type of stress test examines industries or sectors
    • What would happen if there were a downturn in the motel/hotel industry
    • What would happen if there were a regional recession in the Southeast
  • Stress test assumes increase in default levels of sector or a downgrade of all loans in sector by a certain amount
  • Secondary effects should be considered as well. If the transportation sector is affected, what would that do to hospitality sector?
  • How will these changes affect your commercial portfolio? How will they affect your consumer portfolio if employment in your region is affected negatively?



First published on BankersOnline.com 11/17/08

First published on 11/17/2008

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