By Álvaro Espitia and Avik Ray
Crop insurance indemnities have risen due to the worsening effects of climate change, including droughts and floods. This trend is incredibly challenging for farmers who grow commodities like corn,...
Author: Patti Casaleggio
As we navigate today’s intricate landscape of financial risk management, stress testing remains a cornerstone of proactive risk mitigation for banks. In today's dynamic environment, securing the right analytics partner is critical for robust risk management. Read on to discover key considerations in choosing the perfect partner for your stress testing initiatives.
1.**Specialized Expertise**: Select a partner with specialized expertise in stress testing methodologies and financial risk management. Look for a team with a deep understanding of regulatory requirements, industry best practices, and the nuances of stress testing across different asset classes. If you’re considering a partner who is a ‘jack of all trades,’ chances are their stress testing capabilities will not be as robust as other providers.
2.**Tailored Solutions**: Your bank's risk profile is unique, necessitating tailored solutions to address specific challenges. Choose a partner capable of customizing stress testing frameworks to align with your bank's risk appetite, business model, and regulatory expectations. Never try to fit your bank into a vendor’s ‘out of the box’ model.
3.**Advanced Analytical Capabilities**: Beyond basic stress testing, seek a partner with advanced analytical capabilities. Look for expertise in scenario analysis and sensitivity testing to provide comprehensive insights into the potential impact of various adverse scenarios on your bank's financial health.
4.**Transparent Methodologies**: Transparency is key to effective collaboration. Ensure your partner employs transparent methodologies and communicates findings in a clear, accessible manner. Transparency fosters trust and enables informed decision-making within your bank's risk management framework. If you’re required to access a call-center for model questions, run!
5.**Robust Technology Infrastructure**: A strong technology infrastructure is essential for efficient stress testing processes. Choose a partner with robust data management capabilities, scalable analytics platforms, and secure cloud-based solutions to streamline data integration and analysis. Spreadsheet-based tools can be excellent, but the world is moving away from simplistic approaches like this.
6.**Regulatory Compliance**: Regulatory compliance is non-negotiable in stress testing. Your partner should demonstrate a thorough understanding of regulatory guidelines and maintain compliance with evolving regulatory requirements. Look for a partner with a track record of successfully guiding banks through regulatory examinations. Ask for references.
7.**Proactive Guidance**: Beyond conducting stress tests, your partner should provide proactive guidance on risk mitigation strategies and capital planning. Seek a partner who can translate stress test results into actionable insights, helping your bank navigate uncertainties and strengthen its resilience to adverse scenarios. If you or your partner view stress testing as ‘the job’ and not ‘the tool’ then you may want to consider re-evaluating your approach.
8.**Long-Term Collaboration**: Building a successful stress testing program requires a long-term partnership. Choose a partner committed to your bank's success, with a willingness to evolve and adapt to changing regulatory and market dynamics over time.
9.** Consulting and Advisory**: Don’t settle for a partner that constantly invoices you for consulting and advisory support. Those days are gone. How do we know? Because we offer comprehensive stress testing modeling, advisory, and consulting products on a flat-fee basis.
Invictus has substantial experience and expertise in these areas, especially with managing CRE concentrations, stress testing, and capital planning. Please reach out to Patti Casaleggio at pcasaleggio@invictusgrp.com to schedule your free consultative session today.
Invictus Blog, banking, liquidity, stress testing
Author: Adam Mustafa, CEO
Reports are emerging about regulators prescribing Individual Minimum Capital Requirements (IMCRs) to banks with Commercial Real Estate (CRE) and construction loan concentrations. IMCRs are often...