BankThink

Community Banks Should Adopt Some Form of Stress Test

The Dodd-Frank Act requires banks with at least $10 billion of assets to conduct annual stress tests, but experts say many banks below the outset already have a process or have plans to begin testing.

The Office of the Comptroller of the Currency issued guidance in October 2012 stating that "community banks, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes on their financial conditions."

Testing for smaller banks "requires a greater portion of time and attention than it would from your bigger players that have internal resources," Kaplan says. "Bigger banks know how to model for certain factors and that's not true for many community banks," says Craig Miller, co-chair of the financial services and banking division at Manatt, Phelps & Phillips.

"Bankers that forgo stress testing are making a mistake, industry experts say. All community banks should have some form of stress test, even if it is a much simpler than what larger banks are conducting," writes American Banker's Jackie Stewart.

For the full piece see "Stress Testing Shouldn't Be Stressful for Smaller Banks" (may require subscription).

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