Pub. 10 2019 Issue 1

www.wvbankers.org 22 West Virginia Banker R egulatory examinations continue to be tilted toward liquidity risk with stress testing, interest rate risk with a flattening yield curve, asset quality concerns in a highly competitive environment, and corporate governance. The examiners persist in their apprehension with the length of this economic expansion and the possibility of a downturn over the next 12 to 24 months. Strategic planning remains the roadmap to planned performance, and the examiners expect to see quarterly assessments of actual to budget results doc- umented in Board of Director minutes. Liquidity Risk and Stress Testing Let’s start with the easy part . . . examiners want to see every bank stress test its liquidity position under a “less than well capitalized” scenario. This analysis must be completed in a “stagnant” environment. The adverse impact to such a stress test is obvious: banks cannot offer “high rate” deposits and banks cannot (without FDIC approval) use brokered deposits. Remember, these are two separate issues. As an example, even if the FDIC grants a brokered deposit approval, such deposits cannot be “high rate.” Recommendation #1: Due to this expected stress test, banks should determine if they operate in a “High Rate” area. The analysis is prescriptive and not overly complex, so banks would be well served to perform this assessment and main- tain documentation for examiner review. By Scott Polakoff, Executive Vice President, FinPro, Inc.