Stress Test Will Help Community Banks Assess Financial Resilience to Crisis
FAYETTEVILLE, Ark. – Tim Yeager, finance professor at the University of Arkansas and former economist at the Federal Reserve, has created a macro stress test that community banks can use to assess their capital adequacy in times of financial crisis and recession.
The test, a macro-enabled Excel file, and supporting materials are free and available to all U.S. community banks. They can be downloaded at the Community Bank Stress Test page.
“Any U.S. community bank can utilize the resources I developed to build a customized macro stress-testing model,” said Yeager, associate professor in the Sam M. Walton College of Business. “The purpose of the model is to assess the bank's ability to withstand a severe and prolonged period of high credit losses.”
Community banks are locally owned and operated financial institutions with assets less than $10 billion, although most have much less than this amount. Since 2009, the Federal Reserve has used macro stress testing – putting a bank through an adverse macroeconomic and financial shock – as its standard method for assessing capital adequacy at large banks. Although U.S. community banks are not specifically required by regulators to run macro stress tests, those with high levels of commercial real estate lending are required to stress-test their portfolios. Additionally, said Yeager, the banking industry has evolved since 2009 and incorporated stress testing as a routine part of risk management.
“My stress test model is a customizable Excel spreadsheet that provides realistic, worst-case, five-year forecasts,” Yeager said. “It imposes a surge in loan losses based on community banks’ actual charge-offs over 2008 to 2012, the five year horizon that captured the deterioration and recovery of bank balance sheets from the Great Recession.”
Independent Banker, a publication of Independent Community Bankers of America, recently published a story written by Yeager about his stress test and assessing capital adequacy.
Yeager holds the Arkansas Bankers Association Chair in Banking.
About the University of Arkansas: The University of Arkansas provides an internationally competitive education for undergraduate and graduate students in more than 200 academic programs. The university contributes new knowledge, economic development, basic and applied research, and creative activity while also providing service to academic and professional disciplines. The Carnegie Foundation classifies the University of Arkansas among only 2 percent of universities in America that have the highest level of research activity. U.S. News & World Report ranks the University of Arkansas among its top American public research universities. Founded in 1871, the University of Arkansas comprises 10 colleges and schools and maintains a low student-to-faculty ratio that promotes personal attention and close mentoring.
Tim Yeager, associate professor of finance
Sam M. Walton College of Business
Matt McGowan, science and research communications officer
Editor-selected comments will be published below. No abusive material, personal attacks, profanity, spam or material of a similar nature will be considered for publication.comments powered by Disqus
The Department of Crop, Soil and Environmental Sciences raised more than $22,800 for scholarships at its 18th Annual Delta Scholarship Golf Classic this summer.
This year's conference was opened to attendees inside and outside the campus including the Fayetteville Chamber of Commerce and surrounding colleges and universities.
Research shows empathy for a perceived artist affects enjoyment and that listeners want their music happy but their poetry sad.
Men and women ages 21-45 are needed for a nutrition study examining the effects of sorghum bran polyphenols on fecal fermentation.
Jake Smith and Madeline Wagnon, who were named Razorback Classics this year, stay busy with summer work.