Latest comments for http://www.ababj.com , comment 0 to 1 out of 1 comments http://www.ababj.com Wed, 19 Jun 2013 17:51:31 +0100 FeedCreator 1.7.2 http://www.ababj.com/myblog/has-your-bank-tried-stress-testing-3062.html#pc_1287 Although not as comprehensive as the stress testing required of the largest banks, we conducted a high-level (as opposed to a loan-by-loan) stress analysis of the bank's loan portfolio. To briefly describe our methodology, we first calculated the bank's actual loss experience for every loan category (Const. & Dev., Commercial, Commercial R/E, Agricultural, Ag. R/E, Residential R/E…) for each of the last five years. Once the annual loss rates were determined, we then calculated a "stressed" level of loss using loss rates that were two standard deviations above the mean. In our case, estimated losses under the stress scenario were approximately 6.5 times our average loss experience, or equal to our pre-provision, pre-tax net revenue. This type of high-level analysis can be performed in Excel, but requires superior data handling skills. The testing gives us a measure of confidence that our balance sheet is capable of withstanding an adverse credit cycle. It also tells us that there is a considerable level of correlation in losses among the various loan categories. Lastly, an examination of test results has led us to acknowledge that certain portions of our portfolio (primarily Ag. R/E) have experienced very low loss rates over the measured horizon. This is not surprising given the observable rise in the price of farmland in our market, but it underscores the need for additional analysis to understand the impact on these segments of changes in land values and commodity prices. - James M. Cantrell, senior vice-president and chief risk officer, MidWestOne Bank, $1.7 billion-assets, Iowa City, Iowa. Fri, 15 Jun 2012 15:39:13 +0100