Completing Dodd-Frank Act Stress Testing (DFAST) for the first time
The Dodd-Frank Act requires banks above the $10 billion threshold in total consolidated assets to complete an annual stress testing exercise for review by the Office of the Comptroller of the Currency (OCC) in assessing the organization’s risk profile and capital adequacy. This client had recently exceeded $10 billion in assets and needed to implement DFAST for the first time.
A comprehensive DFAST program implementation plan
To ensure it established the proper capabilities for conducting the stress test, the bank worked with a team from West Monroe Partners that provided an uncommon blend of financial services regulatory expertise and deep technology skills, along with significant experience leading DFAST projects. The project team created an enterprise-wide plan for implementing all facets of a successful DFAST program, with work streams focused on:
- Program governance
- Selection and implementation of multiple financial modeling software programs
- Data aggregation
- Model execution
- Results validation
The plan included implementation scenarios and timelines and identified key stakeholders, subject matter experts, and owners for all work streams. The team also established a project management structure and framework to provide constant insight into the program’s overall progress. This enabled weekly project status reporting to key stakeholders and monthly status presentations to the bank’s executive-level oversight committee. In addition to providing program and change management, the project team also guided the bank in creating policies and procedures for the end-to-end modeling process, including data aggregation, assumption development, regression analysis, and model execution and validation. The team also facilitated training for quantitative analytics personnel in the newly adopted modeling platforms.
Finally, the project team completed vendor selection and implemented two software-modeling platforms, QRM and SAS.
A smooth first year, with capabilities on which to build
With experienced support, the bank navigated its first annual DFAST program efficiently and according to the requirements of the Dodd-Frank Act. The bank is now well equipped to conduct future stress tests. Furthermore, the first year’s experience produced recommendations for continuing to improve the program, including automating data loads and expanding the scope of modeling.