Invictus Large Bank Stress Test and Strategic Planning

Invictus assists "Dodd-Frank" banks (>$10 billion in assets) in stress testing and strategic planning.

The introduction of Section 165(i) under Dodd-Frank and the Comprehensive Capital Analysis and Review (CCAR) have created a new set of forward-looking reporting requirements for banks subject to these new regulations. The Federal Reserve Board proposes that all Bank Holding Companies develop and maintain a dynamic and living capital plan. A capital plan is defined as a written presentation of a company's capital planning strategies and capital adequacy processes that includes:

  • An assessment of the expected uses and sources of capital over a nine-quarter forward-looking planning period that reflects the bank holding company's size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions;
  • Detailed description of the processes for assessing capital adequacy; and
  • Analysis of the effectiveness of these processes.

The steps required to comply with Dodd-Frank are not yet clear and will evolve over the coming years, but it is clear that the primary focus should be on the loan portfolio. As such Invictus is helping Dodd-Frank banks on a preliminary basis (taking the cue from the CCAR process) with their strategic and capital planning in two ways:

1. Published bank analytics:

The Invictus process creates pro forma 2-year projected balance sheets under differing stress scenarios using publicly available data and our LoanLayeringTM technique for all Dodd-Frank banks.

2. Multi-faceted stress test consulting:

We work with Dodd-Frank banks by:

  • Benchmarking a bank’s own stress testing against the Invictus stress test result, using ICAM™, either at the holding company or individual company level;
  • Running multiple sensitivity analyses through the Invictus models, where you can vary loan growth assumptions, loss given default and probability of default assumptions, and many others;
  • Reverse stress testing - what does it take to "break the bank";
  • Using LoanLayering® to compare loan run-off to aggregate views in the state, region or across the USA, and which also gives a view on future demand;
  • Comparing the bank to competitor banks (using Invictus public data reports);
  • Performing M&A analysis on your chosen set of potential acquisitions or using our model to search for likely targets, ultimately leading to post-stress, post-merger pro forma financial statements;
  • Understanding the consolidated view of the post-acquisition loan book and capital before the acquisition.

See further details in Customized Bank Strest Testing and Strategic Planning.

Invictus models use publicly available FDIC data for the highest level analysis. Necessarily there will be some variance in how banks classify their data and file their reports, but we have found our public data runs to be highly relevant and inciteful. The models really become effective for Dodd-Frank bank clients when they supply us with greater (loan-level) detail. We evolve our models over time and as Dodd-Frank requirements become clarified -- a "living process", as the regulations stipulate.

Invictus is uniquely qualified to assist Dodd-Frank banks with the new and evolving requirements.

Contact us for further information.