For bankers in the $7-10 billion asset range, their slightly larger peers have a clear message: get ready now. The $10 billion threshold at which banks must participate in the Dodd-Frank Act stress test (DFAST) program is “culture shock,” says Karla Payne, CFO of the $15.8 billion Arvest Bank based in Arkansas. “I’ve talked with a couple of banks that are nearing $10 billion, and I told them they need to start now,” she says, recommending a year and a half to prep for DFAST.
Bankers will find the process and the required data out of sync with how they would normally work, including a nine-quarter lookback. “The hard part for us was figuring out how we’re going to get all that data together,” she says, noting that it involved pulling information from Arvest’s core and from its old call reports.
DFAST requires collaboration from across the institution. At the $15.9 billion F.N.B. Corporation in Pittsburgh, stress testing is led by a specialized group and involves executive leadership and the credit, treasury, finance, accounting, enterprise risk management, consumer and commercial banking units. “It has been an excellent opportunity to enhance skills that benefit our business on a universal scale, including governance, modeling and project management,” says F.N.B. CFO Vince Calabrese. “The stress-testing process is a great exercise in leveraging our collaborative culture to break down departmental siloes and work together toward an organizational goal.”
Arvest “co-sourced” its DFAST participation with Crowe Horwath, whom it relied on to build the model for forecasting and establish the process. Using a vendor allowed Arvest to tap into the expertise of specialized economists, statisticians and model developers, which would have been prohibitively expensive to have in-house, Payne notes. F.N.B. also used a vendor in its first year but has since determined it has sufficient expertise in-house, Calabrese says. Both he and Payne urge banks that will soon become subject to DFAST to start conversations with vendors if only for informational purposes.
As DFAST continues, it may grow easier; the initial set-up of processes and models is time-consuming. It also helps that Federal Reserve examiners, who spend two weeks on-site, are growing more familiar with DFAST banks and expectations. “It’s better this year,” Payne says. “The first year they kept saying, ‘Well, CCAR banks do this.’ And we kept saying that we’re not a CCAR bank nor are we even close.” (CCAR is the supplemental Fed capital planning and stress test exercise for banks with more than $50 billion in assets.)
Apart from the regulatory requirement, is it worth it from a business point of view? While Payne has seen some benefits, she says the jury is still out. However, Calabrese says that DFAST participation has been positive for F.N.B., noting that its successful performance “in even the most adverse conditions gives our board of directors, executive management and shareholders confidence in our performance, infrastructure and preparedness relative to our strategy.”