Community Bank Stress Testing for the COVID-19 Shock

Tim YeagerProfessor Tim Yeager of the Department of Finance along with finance doctoral student Cao Fang have put together a practitioner report on the effects of COVID-19 on community banks across America.

The stress test comes from a scholarly article they wrote  and which is under review at the Journal of Banking and Finance.  Yeager intends to send the COVID-19 practitioner report to the Arkansas Bankers Association.

A brief excerpt from the practitioner report:

“Given the uncertainty [of the COVID-19 outbreak], a bank stress test is a useful tool to make an educated guess as to how banks will be affected by this crisis. Stress-testing provides insights to potential worst-case conditions in the banking industry, which provides opportunities for bankers, regulators and policymakers to better prepare. With preparation, damage to banks’ balance sheets can be reduced, allowing them to continue to lend to creditworthy households and businesses to promote economic recovery.”

Yeager has just updated his community bank stress-test model based on year-end 2019 bank data.