What is the ICAM?
The Invictus Capital Assessment Model™ (ICAM™) is at the core of everything we do. It is a unique, accurate and pragmatic model that is clearly understood by risk managers and credit officers. It mirrors how a bank would perform under various scenarios and various levels and sources of stress. It is not an econometric-driven model, nor does it depend on heavy statistical analyses. The ICAM is run quarterly on 6000+ FDIC-insured banks using public data, allowing for a fantastic degree of comparisons between banks. The model is also run on a more detailed level using loan portfolios sent to us by our client banks. All of our Invictus products derive from the model results.
How Does Invictus Stress Test a Bank?
Our process starts with LoanLayering™ - - segregating portfolios by type, vintage (origination period) and maturity. LoanLayering establishes the risk/reward profile for the loan portfolio, based on how collateral values and economic factors have changed since origination. It also accurately defines loan liquidity and inherent profitability under varying interest rate scenarios. This process gives us the ability to predict likely loan balances in the future. We can (and do) insert loan portfolio growth assumptions, which will drive renewals based on the loan run-off.
The ICAM uses a standardized risk rating system to analyze every bank's loan portfolio, similar to how a typical bank would. It then simulates how loans will behave under various levels of stress. Having been provided expected origination / renewal data by LoanLayering, ICAM stresses new loans as well. The video below gives a representation of this process. (If your browser does not display this video, please contact us and we will send you the file.)
The result are forward-looking analyses of each bank's performance under various scenarios. Our scenarios are similar to those used by the Federal Reserve in its Comprehensive Capital Analysis and Review (CCAR) testing of the largest banks:
Static State Case: This case gives the most likely outcome in an unchanged economic environment.
Adverse Case: Economic conditions remain strained, causing more extensions, modifications, and defaults, but collateral valuations have already reached bottom.
Severely Adverse Case: Economic conditions worsen (i.e. a “double dip”) and collateral valuations decline to levels unforeseen. (This does not assume the Great Depression or a material increase in interest rates, and does not assume a nationwide impact. For most banks, a local change in economic conditions is sufficient to cause stress.) This scenario is used to measure capital adequacy.
We run other scenarios based on other economic assumptions, such as rate changes and/or differing loan growth assumptions.
Projected Balance Sheet and Income Statements
The final output from ICAM and LoanLayering is our pro forma balance sheet and income statement projected forwards two years. These financial statements are extremely valuable for comparative analysis.
Our models have been designed to allow flexible inputs - if you don't like some of our market or stress case assumptions, or want to try different scenarios, supply your own. We'll be happy to run them for you.
Download our leaflet "The Power of ICAM" for more information.