Press
Sageworks risk management advice in advance of December summit
RALEIGH, NC (November 26, 2013) — Bankers today face many challenges in an increasingly complicated regulatory environment. Justifying ALLL changes and developing defensible stress testing methods are some of the many regulatory challenges that bankers must now learn to navigate. However, there are ways that bankers can mitigate risk in these areas. According to experts participating in the 2nd Annual Risk Management Summit by Sageworks, following these four recommendations is a great place to start:
1. Document everything – Bankers should be mindful to document all data and assumptions used in deciding to upgrade or downgrade a loan. Adequate documentation eliminates guesswork for examiners, and allows financial institutions to verify that frameworks for analyzing upgrades are clear, defensible and reliably followed.
2. Don’t shy away from discovering weaknesses – One benefit of stress testing is that it enables financial institutions to measure potential vulnerabilities to extremely adverse events. Stress testing should measure a institution’s ability to respond to a number of catastrophic circumstances. Once negative outcomes are adequately understood, it is possible to address areas of weakness and take protective measures against such risks or to ensure there are adequate reserves.
3. Cultivate a comprehensive stress testing framework – Institutions hoping to prepare for and manage stress testing forecasts should develop a framework with full knowledge of the institution’s portfolio composition and risks, the risk scenarios and the outcomes of each forecast.
4. Set deadlines – It is all too easy to get behind. In order to ensure that end of year ALLL calculations are as painless as possible, bankers should strive to set hard deadlines for deciding risk-rating changes, charge-offs and updates to the core system; determining which loans need to be reviewed for impairment; and updating data within impairment analyses.
For more information on the Risk Management Summit, visit the event page.
About Sageworks
Sageworks is a financial information company that works with financial institutions, accountants and private-company executives across North America to collect and interpret financial information. With almost 700 financial institution clients in the U.S., Sageworks provides a web-based suite of solutions to streamline credit analysis, risk rating, portfolio stress testing, loan administration and ALLL estimation. Additional allowance for loan and lease loss resources can be found online at www.sageworksanalyst.com.