Stress Test Case Study: Leveraging JWL for Stress Testing Project for a Medium-Size U.S. Commercial Bank

Client’s Challenge

  • Regulators had identified weakness in the bank’s risk management processes for analyzing the impact of stress economic scenarios on its consumer risk exposures.
  • The bank needed to accelerate its stress testing capabilities beyond its in house capabilities by leveraging the Javelin Whole Loan (JWL) Platform for analyzing various stress scenario impacts.

Our Solution

  • At the beginning of the exercise, FBA engaged the risk team on what they hoped to achieve out of the stress test in terms of outputs and how it would be used by the bank more broadly to ensure that the team could gain the maximum use from JWL’s analytic capabilities.
  • We worked with the risk management analytics team to determine what macroeconomic scenarios they needed to simulate based on regulatory guidelines. Five Bridges made it easy for the bank to create the necessary scenarios for testing with JWL’s userdefined scenario building capabilities.
  • We guided the bank’s risk team on what loan level data elements are required to run JWL and provided input on to ensure the analysis is conducted seamlessly.
  • FBA provided guidance on model features including customized report generation of stress test results across business units, products and geographic lines, among other stratifications.

Outcome

  • The risk analytics team with assistance from FBA on how to leverage JWL to its full potential was able to generate a number of DFAST stress scenarios on its entire consumer loan portfolio in a timely fashion.
  • The bank was able to meet regulatory stress testing requirements by using JWL to conduct forwardlooking cash flow analytics and pricing forecasts.
  • The use of the JWL Platform since that time has expanded to analyzing portfolio loan performance against a broader set of scenarios and the easy to use report generation features of JWL allow the risk team to generate both standard and ad hoc scenario analyses on demand.