Ahead of the curve: A banker’s podcast episode 4 – Stress testing

Thomas Curley 0:00

This is Ahead of the Curve: A Banker’s Podcast

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Thomas Curley 0:11

Welcome to this episode of Ahead of the Curve: A Banker’s Podcast. I’m your host Thomas Curley and I am here with Zach Englert today, who is a consultant with the Abrigo Advisory Services team. He helps provide institutions with real time solutions in the form of credit risk management strategies and regulatory compliance. He is a common speaker on webinars here at Abrigo and with other associations, as well as conferences, covering current events and the impact on financial institutions portfolios. And recently he has been laser focused on stress testing which is why I’m so excited to have him on today. So welcome to the podcast Zach happy to have you on.

Zach Englert 0:54

Thanks Thomas, super excited to be here.

Thomas Curley 0:57

Awesome! Well, I’m excited and so let’s go ahead and just jump in here. You know financial institutions, banks and credit unions are facing a lot of uncertainty right now and I’m sure we’ll get into some of those specifics there, but just with the overall economic environment currently. I know that you have some thoughts specifically on how stress testing can be a huge help but I thought a good thing to start off with might be really defining stress testing and maybe diving into what is required as far as regulatory perspective and then maybe what are some more prudent things institutions should be doing on the flip side.

Zach Englert 1:36

Yeah, thanks Thomas. A few different things to think about when we’re talking about stress testing. The first being is what type of stress testing are we going to be doing because we throw out the word stress testing fairly often. And depending on where you are at a financial institution, depending on what stage of an economic cycle you may be in, it may have different meanings. The idea of stress testing is essentially taking your current economic situation in your current business model and saying what happens if we change some of the variables that you’re facing. Whether to the upside or the downside.

So, some of the types of stress testing we may be looking at would be credit stress testing, where we’re stressing individual loan level cash flows and collateral values to see what happens to that individual credit if we are changing those specific variables. So essentially will the borrower be able to make payments or will the class or be able to cover any remaining debt should something go wrong? We also deal with a lot of capital stress testing, which is essentially is the financial institution still well capitalized in a stress scenario? So, in that scenario we’re going to be stressing the financial statements, we’re going to be stressing the loan level losses, and essentially say if this institution begins to have losses, do they have enough money? Do they have enough capital in that rainy day fund to be able to cover that? And last but not least we also have liquidity stress testing, which is essentially saying, can a financial institution meet its obligations during a stressed environment? Banks and credit unions, they have bills to pay. They have deposits that they need to be able to make sure that they’re able to cover in the event that there is a run on that cash basis. As well as they may also have the capability where loans are currently having a lower and lower yield and they’re not able to adequately make enough money to stay in existence. So, there’s all these different types of stress testing and really what we’re looking for from the advisory side or from the supervisory existence and guidance is we’re saying, can you make payments in these stress scenarios? Can your institution still have enough capital to be able to cover that information or to cover those obligations?

So, there’s a lot of different ways that you can approach it and auditors, regulators, what they’re really looking for is, “are the scenarios actually providing a reasonable expectation of potential losses or are you just making up some numbers?” Some of the things that they should be looking for are, are the stress scenarios going to be identifying key financial institution vulnerabilities? Is it going to have a reasonable impact on the stressed events as well as is this going to have a adverse impact on earnings, loan loss reserves, or different areas of capital. And those stress tests should be evaluated pretty consistently so that an institution can maintain appropriate capital that is in line with its overall risk profile. So covered quite a bit there, but that’s kind of a high-level overview of what is stress testing and why are we supposed to be doing it.

Thomas Curley 4:40

Great, that makes sense and I know there’s, you know, a fair amount of OCC bulletins and FED statements and I also saw some hypothetical scenarios from the FED, OCC, and FDIC recently. How should institutions take some of those recent statements and incorporate that into their thinking of stress testing?

Zach Englert 5:02

So, one of the things that I would highlight is in 2012 there was a plethora of community bank stress testing guidance. A lot of that information came in line with DFAST, which is no longer applicable to institutions under 250 billion in total assets. But the main components of that are still appropriate for institutions who have strong risk management capabilities as well as are participating in a capital planning process. So, what I would highlight is from the 2012 supervisory insights for stress testing at community banks, they highlight that the strategic value of stress testing may be greatest during the expansionary phase of business cycles. During times when losses are minimal and property values are rising, stress testing assessments of riskier assets in concentrated positions can help management anticipate potential risk. Well, I’ll pause there and highlight Thomas that luckily, we’re not seeing anything remotely like that right now. Definitely not seeing an expansionary phase of the business cycle, definitely not seeing rising asset prices, and definitely not seeing concentrated areas where there may be additional risk. So, one of the things that we’re encouraged to do is make sure that we identify that risk and essentially identify, can we cover in the event that we may have some issues there?

Thomas Curley 6:21

Yeah well, you’ve alluded to some of the, kind of, economic turmoil that we’ve got going on right now. Let’s maybe talk about a couple of those things and maybe why stress testing specifically is something that institutions could turn to as an opportunity to help their institution out.

Zach Englert 6:40

So, in 2019 we started taking a focus on stress testing because a lot of the institutions we work with are in a allowance-related capacity, we are heavily involved in building the CECL models. And during that time period again, in an expansionary phase, we were saying what could go wrong in the future? And we had incredibly low unemployment and there was a lot of liquidity in the markets. We saw a lot of cash free flowing to different areas, whether that was real estate investments, commercial real estate, or equities such as stocks. Then 2020 happened and no one saw a black swan-esque event like the pandemic. And there was a lot of fear in a lot of institutions saying what is going to happen going forward?

Now ultimately, we saw a significant amount of fiscal support come in from the federal government that staved off or a lot of institutions believe, delayed the charge off activity that they would have expected in an event like that. So, we had some institutions say, hey how can we begin stress testing to make sure that we can keep a finger on the pulse on what that may look like? And as the pandemic slowly continued to develop, as people got a better understanding of what was going to happen from an economic situation, I feel like stress testing started to get pushed to the wayside because we saw a reopening, we saw that cash flow startup again, and we saw a lot of borrowers begin to continue to spend to continue to invest. And then we saw a war break out in Eastern Europe and so we have some of these events that were continuing to compound on these unexpected scenarios at a macroeconomic world level that’s having material impacts here in the United States. We’ve seen significant increases in food prices. We’ve seen significant increases in oil prices and that’s going to push discretionary income for a lot of borrowers lower. We’re also seeing some macroeconomic changes in terms of the work situation; we’re seeing huge increases in work from home. That’s going to change how commercial real estate is valued especially as 2023 is going to see the largest rollover rate for renewals of commercial real estate in United States history. So, there’s a lot of these macroeconomic happenings that are fundamentally changing how we manage risk, how we do business, and to have the capability to be able to evaluate that and see what that impact could be I think is going to be super important for these institutions.

Thomas Curley 9:09

Gotcha, that makes sense. And you’ve kind of in some of the other answers already alluded to some of the questions that institutions can solve using stress testing. But I guess probably the bigger question is, you know, what is holding institutions back from stress testing? So, you mentioned in 2019 it started to pop up a little bit more and then we kind of put it on the wayside again. Like what are some of those difficulties that folks are running into?

Zach Englert 9:35

Some of that is going to be data management in terms of do we have the data to accurately provide stress tests. So, a lot of institutions like to run commercial real estate stress tests leveraging net operating income, leveraging debt-to-service coverage ratios, loan to value ratios and they may not be pulling that information into a single aggregate place. So, if an institution has debt-to-service coverage information, but it’s on their lending platform and they do all of their loan analytics on their loan analytics platform, they’re going to see disjointed data coming from that effort. And it can be very time consuming to pull all of that out into various excel templates or other software and try and build those reports. In alignment with that we also have the supervisory guidance saying you need to be doing stress testing. You need to be stress testing these individual items, but they don’t really offer a lot more depth associated with that. So essentially an institution can run a stress test, they can get results but they don’t really know are those results good? Are those results bad? If you are very well capitalized today at a let’s say a 15% tier 1 capital leverage ratio, which for those of you who are listening and may be unfamiliar kind of with some of those standards or benchmarks or what we may be looking at there; a slap on the risk level I would say is 8%. So, institutions are very well capitalized right now and a lot of those institutions are then stressing and getting 10%, 12% as their severely adverse scenario and, it’s kind of looking, it’s like well we stress tested but we’re still incredibly comfortable. Are we okay? And we haven’t seen regulators come out and give everyone a firm thumbs up on what that may look like. So, we’ve got this idea of, hey we may have mixed data on one side, we may have mixed results on the other side. So how can we get a firm understanding of what is good and what is bad?

And for the data side I think you’re going to have the instance of garbage in garbage out. So, if you can focus on what that process is going to look like and how to get to that good end goal, just make that process repeatable. I would say the same thing on the actual results where you say is this good, is this bad? The first thing is, it repeatable? If it’s repeatable and you can consistently get to really good results, I would say that you’re in a really good spot and that’s highly defendable compared to what you may see previously where, hey one stress tests were really good, one stress test were really bad. But if it’s consistent then you’re going to develop a process that’s going to be very comfortable for your institution to be able to defend. The other thing is if you’re getting really really good results, what we like to do with our clients is build out a break the bank scenario or break the credit union scenario where we’re saying what needs to happen for us to no longer be able to meet capital level requirements. And if you document that out and you showcase, hey we have to drop capital levels by 7 or 8%, then in most cases that’s relatively unrealistic scenario, but from the past three years I hesitate to say unrealistic scenario due to the fact we’ve had a number of those actually occur. But when you’re looking at that information it’s super important to be able to look at that and say what would need to happen and if your scenario happening is we need to see a 50% reduction in commercial real estate values or we need to see a 30% reduction in business cash flows, then you can pretty reasonably say to your regulators that we’re in a very comfortable position from a capital perspective. And to be able to have that document to prove that outputs them in an excellent place because a lot of institutions don’t have that recurring process in place today.

Thomas Curley 13:22

Gotcha that’s cool. You wonder how many folks, if they had that in place pre-2019, if they had any of the scenarios hit by chance.

Zach Englert 13:31

That’s one of those things that it’s better to have it and not need it than needed and not have it. Like an insurance policy, like contingency planning I’d prefer to know what’s going to happen in the disaster versus have to figure it out as we go along.

Thomas Curley 13:46

For sure and before we kind of move on to some other questions we’ve got, you know, does this change a lot by asset size in your experience as far as some of the challenges kind of across the board.

Zach Englert 14:00

Very much so. And some of that is going to be data related, some of it is going to be supervisory guidance related. Prior to 2018 institutions over 10 billion in current assets had to comply with DFAST and those were relatively strict reporting requirements associated with stress testing capabilities. So, institutions that were approaching 10 billion or over 10 billion in 2018 are fairly familiar with how to develop a really strong stress test. Whereas the majority of institutions in the United States at the credit union and bank level are sub 10 billion in total assets and they’re being told you need to stress test. But again, back to my earlier statement, they’re not necessarily being told what are good results, what are bad results especially if you’re not even close to the regulatory minimums. So, in those scenarios what I would highlight is you’re generally seeing below about 500 million in total assets, a simple stress loss rate scenario is more than sufficient to meet regulatory expectations. Once you start approaching about a billion in total assets 1 to 2 billion, you’re going to see something where you may want to see multiple scenarios in place and if you have a CRE, land, or construction concentration. The expectation is most likely going to be that they would expect to see some form of loan level stress test as well as that top down or loss rate stress test and over 2 billion in total assets in alignment with a lot of other type of banking activities. Generally, at that asset size you’re going to start seeing those expectations change and get a little bit more stringent. Now I would highlight that that expectation is totally dependent on your regulator, whether that’s a state regulator, whether that’s OCC or FDIC. So, there’s a lot of variables, whether that’s geographic or otherwise but from a general guidance perspective I would say those breakouts that I just highlighted would be a good starting place if you’re looking how can I get started in stress testing today.

Thomas Curley 15:58

Gotcha. Yeah, that’s helpful for even me visually to kind of break out kind of the different areas and like you say they’re good starting points. And I think that’s a nice lead into kind of our next set of questions where, you know, we’ve talked a fair amount about the why and why it’s so important and why it can be helpful to conduct stress testing on a more consistent basis. But we’ve probably got folks listening that this is, you know, they don’t do it very often or they’re trying to get in more of a routine or repetition kind of what you were saying as far as making it a very repeatable process. How can an institution really get started? Where are some of the areas where that can be helpful for them?

Zach Englert 16:36

For an institution that has a CRE concentration or very material portfolio, they have a material construction or farmland portfolio as well, I think that the easiest place to get started is with that loan level or bottom-up stress test. And that’s something that depending on how they build it they should be able to run on a quarterly basis. And the idea there is, do you need to stress every single commercial real estate loan? Probably not, but just being able to identify your top 10 largest or your top 10 borrower relationships is something that you should be able to stress on a recurring basis. And if you are applying the same methodology and the same input on a quarterly basis, building that out should not be difficult to update because you’re just going to be rolling forward the inputs into the model. You’re going to be rolling for the balances if you’ve got updated financial statements, you’ll be uploading that info. If you want to apply a simplifying assumption such as property values going up or down by 5% from where they were last quarter, 5% over a quarter is probably a little aggressive, but we’ll say maybe 1% quarter over a quarter. But to be able to develop that out, then I think that you’re going to see a really strong risk management culture be built up simply because you’re performing that on a quarterly basis and it’s a starting point. And as your institution grows, as your lending limits change over time it’s very easy to step that up from the top 10 largest relationships to the top 20. Or to take that process and automate it utilizing software and do all of your CRE loans. There’s a lot of different ways that you can build that out.

From a capital perspective if you’re not doing so today simply starting with a stress loss rate scenario, applying it to the whole institution even if you’re looking at it from a regulatory check the box exercise is a huge step forward from doing nothing. And a lot of institutions are saying hey, because we haven’t started, because we haven’t been told to do anything, we can comfortably continue to not do anything. I think just starting puts you in a really strong spot to edit because the really difficult part is having to create the stress test. But there’s enough material out there to be able to build one and then edit and once you start doing it on a recurring basis it’s a lot easier to make adjustments to be able to say hey instead of doing it once a year, I’m gonna do this twice a year, semiannually, as opposed to just annually. Or if I want to do it more often I can change my stressors to where my severely adverse, which may not have been that bad, I can crank those numbers up and you can really see that impact in a real time scenario as opposed to me asking the question hey Thomas what happens to the hotel on the corner if their vacancy rates drop by 10%? You’re going to look at me, I’m going to look at you and we’re both going to say I don’t know. Well already just saying that out loud, you can see how valuable that information may be if you can go and immediately plug that into the model and see the impact on not only that individual loan, but if that’s a material relationship what’s the impact to your financial institution. And that’s a lot of information that may be not beneficial if it takes you 7 hours to do it. But if it can take you 3 minutes to find out that answer then that’s a lot of powerful information to have at your fingertips.

Thomas Curley 19:53

For sure, like you said it’s always good to have the information, be able to pull it if you need it as opposed to having to spend all the time or not even know how to go about it. So that’s a great, that’s a great point. Are there some common mistakes or say lessons learned in your experience you’ve seen where folks start to, kind of, build this out and maybe there’s a chance for us to give them a heads up before they start diving in there?

Zach Englert 20:16

Yeah, so a lot of institutions they may have their allowance modeling being done by their accounting or finance team and their stress testing is done by their credit team or vice versa. And then somewhere else in the institution you may have someone performing the strategic planning exercise with their asset liability management model. Well, all three of these models are forward looking. The ALM model is going to be used for budgeting purposes, for capital planning purposes. Generally speaking, in capital planning you’re also going to have stress testing. So, institutions normally are doing all three of these exercises in some capacity even if it’s a simple spreadsheet model for one of them or if it’s a robust third -party software model that they’ve built and worked with the team to be able to utilize. If those 3 models are telling very different stories, then when you’re presenting that information whether to auditors or regulators, you’re going to have some probably nitpicky responses where hey why aren’t these things talking to one another or why are these not in alignment with one another. Your baseline stress test in theory should be what you expect to happen with probably a little bit more stress loss rates. Your allowance model should say this is what we expect to happen and your asset liability management model should be what you expect to happen if you have three different forecasts with three different expectations of what you’re gonna, you expect to happen. Generally speaking, it points to a lot of errors in all three models.

So, the idea there is because we have these forward-looking scenarios, let’s make sure that they line up with one another and again, it’s a lot easier to edit than it is to create. You can pull over some of that allowance modeling and stress testing. You can pull over some of your stress loss rates into your asset liability management modeling when you’re saying what do we expect to happen in the event that interest rates rise. Right now, we’re expecting as much as another two-hundred basis points of interest rate rises this calendar year. And if that were to occur you’d want to know what’s the impact of that on my portfolio and if we coincide that with a stressed loss rate environment, again just more powerful information and a lot of institutions aren’t taking advantage of today because they’re having three separate teams or three separate individuals running their models their own way instead of having those talk to one another and all.

Thomas Curley 22:47

Gotcha. Sounds like a classic example of work smarter, not harder if you can get all three of those complicated exercises to use some of the same inputs then you should be in good shape.

Zach Englert 22:57

Very much. So.

Thomas Curley 22:59

Well, you’ve alluded to and you were just talking a little about asset liability and CECL and we even talked about way back, you know, credit on the credit side. What are some of the use cases for the results? So, let’s say we get everything aligned and they’re kind of telling the same story, you know, what are some of the results that they institutions can look forward to having and kind of helping grow and manage the institution moving forward?

Zach Englert 23:25

So, one of the things that came out in 2018 and has been pushed back just a little bit is an article discussing, essentially, what are you supposed to be doing for CECL and stress testing in the future? And the Federal Reserve came out and they said that you should be leveraging your CECL model results or a forward-looking life of loan model for stress testing after you adopt CECL. So instead of saying hey we’re going to have a completely separate model, let’s just use our CECL model and then we’ll ramp up those variable factors. So, if you’re leveraging a probability of default model and you have your probability of default tied out to an economic indicator, let’s use unemployment for an example because a lot of our institutions are leveraging unemployment. And we see unemployment start to hit a worst case scenario such as the severely adverse scenario provided by the Federal Reserve and we say that we think that the next four quarters is going to be 7.1%, 9.0%, 9.4%, and 10% unemployment rate you would expect that to have a higher loss rate in a stress scenario than what you’re experiencing today. We also probably are going to see prepayments slow during that point in time because again, we’re having higher interest rates in the future. So, if we have higher interest rates that means people aren’t going to be refinancing as actively, so we’re going to slow that refi activity, slowing prepayments so loans are on our books longer. We also have a higher probability of default due to the higher unemployment rate, so there’s two different factors there that are increased risk and because of that we would expect to see higher levels of charge off. All I did for that scenario is I took a CECL model which we’ve documented pretty aggressively and then we’ve applied that same logic into our stress testing scenario. And to back that up again I used information that was readily available from the Federal Reserve for my severe adverse scenario and from historical expectations associated with prepayment activity.

So instead of having to create something brand new for stress testing, copy paste edit, just like when you were in college, right? So sorry anyone out there, that’s not true. Sorry prior college professors. But that’s just an example that you can leverage, something that you’ve done really well and be able to leverage that going forward for other processes. You don’t have to recreate the wheel. You can just edit something and there’s enough information out there where you can get a lot of those forecasts and scenarios for free too.

Thomas Curley 26:04

As far as, so I think you just walked through a cool example of using up information from a bunch of different systems and places but it’s not that difficult once you can get the data in the same place. As far as some of those reports, you know, giving and showing the information and the results of those you know what departments or roles do you think would benefit greatly from maybe seeing more of this information on a you know quarterly or yearly basis?

Zach Englert 26:34

I am a big proponent of dashboard level reporting. So, if you are a credit manager whether that’s in the Chief Credit Officer role, Chief Risk Management role, or even the CEO who’s looking at a touch base, what is our exposure. Then having an updated capital ratio scenario and various stress scenarios is something that is super beneficial. Super easy, especially when you align that over the next nine quarters. So, you can take your ALM forecast and directly underneath that where it has those financials you can say this is our baseline adverse and severely adverse capital expectations should the same type of thing happen going forward. That’s something that all of those individuals can immediately look at and say hey this story checks out, we’re okay with this or hey maybe these numbers don’t look appropriate. What do we need to change to prevent this from occurring? Again, if we may have a insufficient capital or something along those lines.

The second component would be a very similar report but the top 10 relationships by borrower or balance size, in which case you’re looking and saying if something were to go wrong, and again you’d have those expectations such as a decline in collateral value or plausible decreases in cash flows. If that were to happen, what would we expect to see against those top 10 relationships? So, if our top hospitality client, maybe they have 1 to 5 different hotels, if we were to see vacancy rates increase substantially, again plausible decrease in cash flows. If we were to also see an interest rate increase 200 basis points and we were to see a decline in collateral value 30% reduction due to the reduced cash flows. If all of that were to happen, is that relationship still comfortable? Because most institutions, they have a lot of loans but they are going to have a smaller percentage of those loans for their material amount of holdings and if one- or two-multimillion-dollar seven figure loans go bad, I want to know about it. And the people who are actively pursuing strong risk management want to know those what if scenarios. As we’ve seen over the past three years, what if scenarios are starting to look a lot and lot more likely than they may have been in 2018/2019. So having a high-level capital overview and a high-level credit risk or loan level overview is something that is incredibly powerful for Chief Risk Officers, Chief Credit Officers, as well as anyone on the finance team as well.

Thomas Curley 29:14

And, you know, once we get, once institutions get those reports dashboards set up, in your experience working with clients over the last you know year or two, what are some of the actions that you’ve seen folks take to related to capital and strategic planning more often? Are there kind of some trends that you’ve seen there?

Zach Englert 29:38

Yes. The first thing I would highlight is the kind of end all be all statement of better credit risk management practices. And that’s something where you’re painting with a very broad brush to be able to say that you participate in strong credit risk management and a lot of institutions are super excited that they have strong credit risk management because they don’t have any losses. However, if no one has any losses does that mean that your institution has strong credit risk management culture or are we a part of a twelve yearlong economic expansionary environment and I’m inclined to believe that it’s the latter.

For institutions that have strong credit risk management culture, they’re able to proactively identify loans at risk and be able to observe them separately. Stress testing put you in a position to be able to actively look at those credits and see are they still comfortable in these stress scenarios, if not, what can we do today to prevent that having a material impact on capital or earnings? And being able to proactively identify when something’s going to affect your earnings is a really strong position to be in when you’re talking to board members or in the event, you’re a public entity talking to shareholders or stockholders because you’re able to say we saw this coming we prevented that. You can see when we’re looking at institutions in 2009 to 2012 that there was a significant difference in the institutions that had strong credit risk management. We had 140 institutions fail in 2009 and 157 in 2010. In 2021 and so far in 2022 there have been 0 institutions that have failed. So as such do we think that this is an event of strong credit risk management today or economic cycle? If we assume that it’s the economic cycle and I think, should we go through another recessionary environment the banks who are not only going to not fail but actually perform incredibly well are the ones who actually exemplified strong credit risk management. And they were able to proactively identify contingency planning as well as loans that need to be downgraded probably before we start seeing those signs of distress. Just to name a short summary of how institutions are using that.

Thomas Curley 31:56

No but I think that makes sense. I like putting it in a more historical perspective too and kind of looking at it that way. I think it’s to your point stronger credit risk management can mean a lot of different things to different people. All right let’s put you on the hot seat. If somebody jumped on here and maybe skipped to the very end because they just wanted to hear the summary, what would be the 3 big takeaways you have folks take away from our conversation today.

Zach Englert 32:24

The very first thing that I would highlight is if you are not stress testing today, and when I say not stress testing, I mean that you do not have a process in place that you are repeating on at a minimum an annual basis, that’s something that you should start. There is a lot of really great resources. The bare minimum I would do would be to go to the OCC.gov website, type in supervisory stress testing, and they have an example that you can copy paste and apply to your institution I think that that is incredibly simplistic, but at least it’ll give you the capability to say that you’re doing some form of stress testing. After you get through step one, so if you are already stress testing today, great, you’ve already checked the box. Way to go. But if you are not doing that, that would be step one.

The second step of that would be if you have multiple forward-looking models, if you are parallel testing for CECL, if you are live on CECL today, make sure that that model is speaking to your stress testing model. If you are budgeting financial statements on the asset liability management side, if you’re leveraging that data for capital planning, make sure that your stress testing model is speaking to that as well. So, we have all of these disjointed forward-looking models, make sure that they’re no longer disjointed. Make sure they’re all speaking to one another and you can carry that forward.

And last but not least make sure that you have an effective contingency plan. A contingency plan is not “that will never happen to me.” A lot of institutions approach any form of stress testing with that’s not reasonable, that’ll never happen. And in the same way that people say, “hey I’m never going to lose my job,” “I’m never going to default on a mortgage,” “never going to have x amount of credit card debt,” there’s a lot of coulda shoulda woulda. If you have a contingency plan in place, it’s just like an insurance policy that’s capable of being there even if you don’t need it. And is that going to take time? Is that going to take effort to build out? Yes, but in the event that it is needed it is going to pay off tenfold. So, let’s go ahead and make sure that we build out that contingency planning, should you have loans go bad, should you not hit earnings in the same way that you would expect. Again, just start building out strong credit risk management procedures and let’s make sure that we take it a step ahead of being able to say that and actually being able to show the efforts and results of what you’ve built previously. So those are my three things to take away if you just joined or if you made it all the way through.

Thomas Curley 34:54

And that folks is the truth about stress testing so no need to be stressed out at all when we’ve got Zach on the line with us. For those that are new listeners or haven’t subscribed yet, you can find this podcast and future episodes on https://www.abrigo.com/. You can also find it on your favorite podcast app or platform just search Ahead of the Curve: A Banker’s Podcast or simply Abrigo because it’s shorter. Thanks so much for listening and we hope to be back again with you soon and we just want to say a special thank you to Zach for joining us afternoon to get excited about stress testing.

Zach Englert 35:30

Thanks Thomas and thanks everyone who joined. Talk to you later.

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