Why Your Stress Testing Needs to Change Right Now for COVID-19
As regulatory scrutiny looms, banks must ensure they have the proper tools to assess the impact of the COVID-19 crisis on their capital, asset quality, earnings, liquidity and more. The one tool that covers all those areas is a stress test designed specifically for the pandemic. But most banks are doing stress testing wrong. Many are using a top-down approach rather than a bottom-up one. You need to be able to triage your loan portfolio based on the dollars you have at risk. This enables proactive risk management and workout strategies with borrowers to limit losses, which is not applicable with a top-down approach. Some banks are simply using a loan-level CRE stress testing approach, but that leaves banks with blind spots in the pandemic environment. CRE stress testing ignores critical risk characteristics and offers no insights into residential mortgages. Invictus CEO Adam Mustafa will explain why stress testing methods must change, and how using the right approach will help banks manage the crisis and position themselves for opportunities once it ends.
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