How One Bank Uses Invictus Stress Tests

How One Bank Uses Invictus Stress Tests

The economic fallout from the coronavirus is keeping many community bank executives awake at night. But some bankers are getting extra sleep, thanks to a tool that helps them understand their risks in real time, while also seeing the capital impact of any strategic moves they might make.

Peapack-Gladstone Bank in Bedminster, New Jersey has been using the Invictus Group’s stress testing systems for three years. The bank also signed up for the Invictus COVID-19 proprietary stress tests, which include a high-risk watch list of loans that have the most material impact on the bank’s capital under stress.

“I lose sleep over these larger exposures,” says Peapack-Gladstone Chief Credit Officer and Executive Vice President Timothy Doyle. But armed with the Invictus stress test results, “I can see which ones I need to spend most of my time on right now.”

He also used the Invictus COVID-19 tests to justify the qualitative factors the bank used in calculating its March allowance for loan and lease losses (ALLL), which the board and the bank’s auditors “accepted wholeheartedly.”

The Invictus COVID-19 tests are driven by loan-level data, but also include an analysis of a bank’s P&L, balance sheet and regulatory capital. The team tailors the tests for each bank, delivering customized reports with key findings and recommendations, as well as a board presentation.

Doyle says the Invictus stress tests “on the capital and liquidity side, have been instrumental in helping us formulate our plans.”

Although he has used the Invictus stress tests to help demonstrate to regulators that the bank has adequate capital and liquidity to support its actions, he also views the stress testing as a strategic tool. “Used properly, this can help guide a management team with regard to strategic decisions,” he says.

“It helps us understand the vulnerability of certain pools of risks.”  He says unlike other stress tests, the Invictus tests can show “how parts move” in a bank. “That’s what I need to understand risk in this organization.”

The board has also welcomed the Invictus stress tests because they give them a window into how risk is managed at the bank, Doyle says.

The Invictus model is relationship driven. “The team really tries to understand. In our case, they came and tried to understand what our structure was, what keeps us awake at night, what goals we are trying to achieve. They are always available. It doesn’t matter what the issue is, or what time it is,” he says.

“To me, I’m the credit guy. Our biggest assets are our loans. How we slice and dice risk is the important way of understanding where we are and get a view of where we are going. All of that is where Invictus plays a great role.”