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Is Your Bank Ready For ‘The Next Thing’? 

Financial uncertainty of the past few years has led community banks to think more about stress—stress testing, that is. Bank leaders recently emphasized to RMA the importance of these periodic portfolio and strategy health checks, not just for managing risk but to focus the institution on its long-term goals.  

Among their recommendations: 

Get the data. During the pandemic and recent banking crisis, banks without the necessary data had a hard time assessing their situation. Better data leads to quicker analysis and action, said Jeff Brunoehler, chief credit officer at Midland States Bank in Effingham, Illinois. 

Secure buy-in. To gain support, ask leaders what’s important to the bank and align stress testing with strategic planning. Tying outputs like expected loan loss rates to activities like capital planning can help justify the investment.  

Compare and adapt. Check the results of past stress tests against real-world outcomes and adapt your models based on the findings. You may be surprised by what worked.  

Stress testing can get organizations out of the day-to-day weeds of operations and into a big-picture mindset, allowing them to think more about their portfolio and long-term investment goals, the community bankers said. 

“I've learned in my 35 years of banking that I can’t predict what the next thing is going to be, but there is going to be a next thing,” Bronoehler said. “We just need to prepare for that.” 

Read the full summary from this RMA Annual Risk Management Virtual Conference panel to find out how other community bankers are thinking about stress testing.