Important News About Bank Capital Planning: Feds To Supervise Banks’ Plans Year-Round

Bank capital planning processes are coming under greater scrutiny as the Federal Reserve begins assessing firms’ internal controls more frequently and directly over the course of a year. After the…

Jul 9, 2014
Mitchell Buchanan
Blogs, The Finance Playbook

 

Bank capital planning processes are coming under greater scrutiny as the Federal Reserve begins assessing firms’ internal controls more frequently and directly over the course of a year.

After the economic meltdown of 2008, the Feds designed a “stress test” to hold banks to higher risk management standards and ensure they have enough capital to continue actively lending to households and businesses in adverse economic conditions.

However, in June, 2014, Federal Reserve Governor Daniel Tarullo announced that banks need to be more closely supervised because some “still lack reliable information about their business and exposure” and are “unable to measure or understand how stressful conditions can change the performance of their material business lines”.

 

Tarullo also says that banks will need to strengthen senior oversight, implement more effective checks and enhance accountability in order to better measure the impact of and prepare for unusual and improbable risks.

Stress tests are constantly evolving and banks must evolve, too

According to Tarullo, the Fed’s tests and reviews will constantly evolve to reflect new risks and innovations in the financial system. In order to keep up with the Feds’ changing criteria, banks’ internal control structures must be flexible, transparent and able to facilitate firm-wide collaboration.

However, the reality is that many banks store crucial financial data in siloed Excel® spreadsheets. On their own, spreadsheets are not secure, meaning any user can make changes to figures and formulas.

Additionally, users must spend time manually inputting data into spreadsheets and confirming the accuracy of data through emails that tend to pile up and get pushed to the bottom of inboxes.

Also, it’s not possible to monitor the status of tasks or processes using spreadsheets alone, meaning finance teams must do a lot of extra manual work to create an enterprise-wide view of the bank’s financial health.

Without an enterprise-wide view of the firm, internal team members will have difficulty identifying and reversing potential risks.

Conclusions: Best practices when it comes to bank capital planning

Banks will be under greater scrutiny than ever by the Federal Reserve and must have flexible, automated, transparent and enterprise-wide internal controls to pass the Feds’ stress test.

The software solutions that can best prepare banks for stress tests and future economic crises are those that wrap the best of Microsoft® Excel® in a secure, centrally-managed, automated environment.

Solutions that automate the collection and consolidation of data reduce the need for manual processes and their associated risks.

Also, secure, centrally-managed solutions gives management control over and insight into the status of individual tasks and department-wide processes, making it easy for management and the Fed’s committees to assess the firm’s financial health.

A flexible solution will help banks easily adjust their processes according to the ever-changing financial conditions that have an impact on the Fed’s stress test criteria.

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Mitchell Buchanan