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
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