Ag & CRE Stress Testing for Banks

Enhance your credit risk management with agricultural and CRE stress testing.

What is a bank stress test? A stress test of your loan portfolio is a valuable risk management tool. Stress tests provide key insights into your organization’s ability to withstand plausible stress events, such as an economic crisis. Federal regulators require banks to conduct stress tests annually, focusing on commercial real estate (CRE) and agricultural (Ag) loan portfolios to identify and quantify large concentrations of risk.

With a deep understanding of regulatory expectations, Y&A performs CRE and Ag loan portfolio stress testing using our proven model. Our stress testing process assesses the potential impact of adverse and severely adverse economic conditions as outlined in regulatory guidance. This provides valuable insights for your management team and board of directors, aiding in strategic and capital planning, as well as loan product design and underwriting standards.

Why your bank needs comprehensive Ag & CRE stress testing

Enterprise stress tests for banks explore all aspects of an institution’s balance sheet and income statement over multiple quarters.

Here are key reasons why stress testing is essential:

Overall risk management

Portfolio stress testing can reveal whether a bank can withstand economic or financial crises.

Course correction

Testing under hypothetical situations allows institutions to adjust strategies if outcomes are unfavorable.

Regulatory compliance

Various regulatory authorities mandate stress tests for banks of certain sizes.

Credit risk management

Estimate potential credit losses a bank may experience if factors that impact the performance of the loan portfolio weaken.

Added benefits of bank stress testing

The forward-looking assessment results of these stress tests provide more than an overview of potential losses. They provide meaningful insight into your bank’s level and direction of credit risk, which should in turn inform your strategic and capital planning exercises and credit risk management activities.

The insights from the stress test results should be used to inform your institution’s:

	Concentration risk monitoring
	Concentration limit setting
	Loan product design
	Underwriting standards

Contact an expert

Are community banks required to perform CRE stress tests?

As a general rule, community banks are not required to perform the type of enterprise-wide stress tests required of larger financial institutions through either Dodd-Frank Act Stress Testing (DFAST) or the Comprehensive Capital Analysis and Review (CCAR).

However, the 2006 interagency CRE Guidance emphasized that a reasonable and well-documented approach to CRE portfolio stress testing, undertaken at regular intervals, is the most effective way for community banks to meet examiner expectations and to contribute toward effective risk management of CRE concentrations.

What to expect during a loan portfolio stress test

During a loan stress test, our consultants will help identify the loans to include, based on criteria from the 2006 CRE Guidance. We define scenarios and use our proven methodology to perform each stress test.

Our report includes expected loss projections for adverse and severely adverse scenarios on a loan-by-loan basis, along with a portfolio summary and a clear explanation of the analysis and results.

For added flexibility and convenience for your financial institution, Young & Associates can perform these bank stress tests remotely, rather than on-site. Contact us to get started.

Strengthen your CRE & Ag portfolio — schedule a stress test today

Ensure your institution is prepared for changing market conditions and regulatory expectations. Our CRE and agricultural stress testing services provide the insight you need to evaluate portfolio resilience, identify emerging risks, and make proactive lending decisions. Connect with our experts to get started.