OCC Announces New Stress Testing Guidance and Commercial Real Estate Stress Test Tool for National Community Banks and Federal Savings Associations

WASHINGTON—The Office of the Comptroller of the Currency today provided guidance to national banks and federal savings associations with assets of $10 billion or less (community banks) on using stress testing to assess risk in their loan portfolios.

The guidance is contained in OCC Bulletin 2012-33, Community Bank Stress Testing: Supervisory Guidance.

The OCC's guidance provides additional clarity around stress testing expectations for community banks. The guidance also provides an example of a simple stress test framework to consider. The OCC expects all banks to have the capacity to analyze the potential impact of adverse outcomes on their financial condition in order to establish and support their risk appetite and tolerances, set concentration limits, adjust strategies, and appropriately plan for and maintain adequate capital levels. The guidance makes the point that stress tests do not need to involve sophisticated analysis or third-party consultative support. Effective methods can range from a single spreadsheet analysis to a more sophisticated model, depending on portfolio risk and the complexity of the bank.

In addition, the OCC is making a new portfolio level stress test tool for income producing commercial real estate (CRE) loans available to national banks and federal savings associations through BankNet. The Microsoft Office Excel^TM-based tool is designed to provide bankers a simple method to perform portfolio stress testing on income producing CRE loans, particularly in institutions with significant CRE loan concentrations. This optional tool was developed by OCC examiners in response to requests from community bankers for more specific guidance on how to stress test loan portfolios. It is part of the OCC's ongoing commitment to provide technical assistance and practical solutions to the community bank sector of the industry.

"The guidance and the new stress test tool can help community banks enhance their strategic and capital planning processes," said Senior Deputy Comptroller John C. Lyons, Jr. "Bank management's understanding of an institution's key vulnerabilities is an important component of sound risk management and recent experience has demonstrated the value of stress testing as a way to help quantify and manage those risks." The OCC encourages community banks to adopt a stress test method that fits their unique business strategy, size, products, sophistication, and overall risk profile.

Bankers should use this guidance in conjunction with stress testing discussed in the related links below. The OCC plans to host a teleconference for bankers on December 3 to discuss the new guidance.

Related Links

• Bulletin 2012-33 Community Bank Stress Testing
• "Concentrations of Credit" booklet in the OCC's Comptroller's Handbook series
• ]OCC Bulletin 2012-16, "Guidance for Evaluating Capital Planning and Adequacy"
• Interagency Final Guidance on "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices."