Stress Testing

For banks approaching or exceeding regulatory guidance on commercial real estate (“CRE”) concentrations, performing periodic stress testing to measure capital adequacy is a must. We offer a deep level of stress testing expertise and a wide variety of expertly delivered stress test options:


The Top Down Model

This model utilizes loss rates as provided by regulators during the prior economic downturn. We then apply those losses against the specific components of your commercial real estate portfolio and re-calculate your capital ratios to measure for capital adequacy. This is a valuable exercise for all banks, not just those with perceived commercial real estate concentrations.


The Loan Level/Bottom Up Stress Test Model

For banks with meaningful CRE in relation to capital or with high levels of recent growth within their CRE portfolio, a loan level stress test both meets regulatory guidance and allows the bank to strategically plan for growth in a safe and sound manner. Our model utilizes excess cash flows in relation to debt, strength of collateral and guarantor support as appropriate mitigating factors so that the projected impact on your capital is in line with “real world” downturn performance.


The Construction on Speculation Model

Many banks have experienced recent growth in their construction loan portfolios. Because the source of repayment on these loans differ from other CRE loans, construction portfolios require a different methodology in order to stress test for capital adequacy. We offer such a model that is unique in the marketplace. Our model has a sound methodology that has been reviewed and complimented by the various regulators. We also offer competitive pricing as our model can be performed remotely with little burden on the bank.

Our stress testing reports are clear, concise and easily digestible. Whatever your preferred approach, our stress tests can be performed either in tandem with loan review or as a separate engagement.