16 Hoosier Banker April 2016 Be Your Own Bearer of Bad News Questions about inputs unfailingly lead to questions about outputs and have become the source of much regulatory consternation. Regulators are concerned that model-generated reports, driven by overly optimistic assumptions, are leaving community bankers with a false sense of security as they evaluate their risk preparedness. To address this concern, risk managers are encouraged to conduct sensitivity testing of their assumptions. By isolating a particular assumption and stressing its value to the bank’s detriment, management should develop a better understanding of the risks associated with overly hopeful assumptions. While regulatory pronouncements have left the degree of stress unspecified, pricing betas for NMDs should be appreciably ratcheted up, if management truly wants to see what levels of interest expense might await Home Bank, Martinsville, opened a mortgage loan center in February at 16 S. Jackson St., Suite 1B, in Greencastle. David Taylor, mortgage loan officer, will be the sole officer at the location, serving Putnam and surrounding counties. t David Taylor, mortgage loan officer, is pictured at the new mortgage loan center, located in Greencastle, of Home Bank, Martinsville. New BraNches, BuildiNgs & OpeNiNgs Continued from page 15. Chicago Indianapolis St.Louis Milwaukee 201 NORTH ILLINOIS STREET, SUITE 1400 CAPITAL CENTER, SOUTH TOWER INDIANAPOLIS, INDIANA 46204-4212 T: 317.464.4100 • F: 317.464.4101 • SALAWUS.COM Locally Sourced, Handpicked Lawyers Growing in Indiana to meet your company’s legal needs A FULL SERVICE business law firm with a simple promise – PUT YOU FIRST STEVEN LAMMERS MARTHA LEHMAN LARRY TOMLIN JOHN TANSELLE STEPHEN STITLE DEBRA MASTRIAN MARK WENZEL PHILLIP FOWLER them. The rock-solid and long-lived nature of those NMDs should also be put to the test with higher decay rates and shorter average lives than what historical analysis might suggest. Your perceived insulation from economic value of equity (EVE) depreciation might prove to be a false perception. And finally, simulating the effects of having to replace the loss of a significant percentage of core deposits with brokered funds or borrowings has negative implications for earnings-at-risk and EVE volatility. The results of these input changes may paint a picture of risk exposure far less sanguine than what is currently perceived, but that’s the point. By stressing these key assumptions, risk managers are forced to evaluate the results of an environment they are loathe to accept, but which may more accurately reflect future conditions. While this news may be no more welcomed than finding out that the cow has eaten the cabbage, it’s preferable to being blindsided by faulty assumptions. t
RkJQdWJsaXNoZXIy MTg3NDExNQ==