Community bank proactive risk management: Concentration management, stress testing and capital planning
Abstract
The effect of the aftermath of the economic downturn of the past five years has been hugely significant for community banks in the United States. Along with hundreds of bank failures, consolidations and a squeeze on margins and profits has come an onslaught of new regulatory advisories, controls and guidance. Responding to pressure from the public, press and legislature, US bank regulators and their agencies have scrambled to put in place new comprehensive safeguards to try to prevent another similar crisis. Community bankers are overwhelmed with the volume and complexity of new rulemaking and suggested best practices, having been already shell-shocked by the staggering impact of the economic crisis and its effects on their customers, local businesses, real estate valuations and home buyers. New regulations, rules and best practices being put in place for lending and credit risk management include ‘forward looking’ more proactive measures and processes. They are challenging the ways that community bankers have always managed their portfolio risk, and forcing them to adopt and try to implement new practices like ‘stress testing’ and ‘concentration management’. Today, US community bankers are trying to adopt these new practices with mixed results.
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Author's Biography
Peter L. Cherpack is the Senior Vice President, Principal and Director of Credit Technology Solutions Group, Ardmore Banking Advisors with over 30 years’ experience in banking, specialising in information management, operations, credit analysis, project management and stress testing. His employment highlights include 17 years with PNC Financial Group, and the past ten years with Ardmore Banking. He has been published and quoted recently in industry periodicals including the RMA Journal, Bank Director, American Banker, the Independent Community Banker, Bank Safety & Soundness Advisor and the Journal of Risk Management. Mr Cherpack’s most recent speaking engagements include the California Bankers Association, the Conference of State Bank Supervisors, the FFIEC Supervisory Updates and Emerging Issues Seminar, the RMA Annual National Conference and the FFIEC Community Financial Institution Lending Forum.
Brian W. Jones is Senior Vice President and Chief Lending Officer of Newfield National Bank. He is Vice President of Risk Management Associates (RMA) of Southern New Jersey, USA. He served as a presenter on stress testing in community banks at the RMA National Risk Conference held in 2011 in Washington, DC. Mr. Jones is a graduate of the Stonier Graduate School of Banking at the University of Delaware and Rowan University in Glassboro, New Jersey.
Citation
Cherpack, Peter L. and Jones, Brian W. (2013, September 1). Community bank proactive risk management: Concentration management, stress testing and capital planning. In the Journal of Risk Management in Financial Institutions, Volume 6, Issue 4. https://doi.org/10.69554/MTRF6594.
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