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Analyst, Stress Modeling (Financial Services)
Ref No.: 16-02962
Location: New Providence, New Jersey
Position Type:Contract
Start Date: 08/05/2016
General Overview:
 
Below please find the items regarding the Capital Planning and Stress Testing related to Small Business Lending Corporations (SBLC's) and Non Federally Regulated (NARFL's) SBA Lenders. In the last 24 months, rules were promulgated when I was Director of the Office of Credit Risk Management, to require the 14 SBLC's and 20+ NRFL's ($5.0 billion market segment that could double in the next 36 months) to implement a Capital Plan and Stress Test into the Regulatory Requirement for the Annual Examination and Reporting to SBA.  The only guidance provided by SBA thus far has emanated and made reference to OCC Bulleting 2012-16 – Guidelines for Capital Planning and Stress Testing. The general SBA suggestion has been to reference Community Bank Stress Testing.  Please note Non have been completed to date.  I have attached a copy of a presentation I received on the subject for your review.
 
Our client a hedge fund in the process of determining their approach and are currently in the middle of discussions regarding options.
 
In the case of the SBLC's and NFRL's the key components for our client and the vendor that they choose would be:
 
  • Having a generic base case model for a non-depository lender. Development of a Base Model is a core component need for the SBLC's and NRFL's. The model needs to forecast out 8 – 9 quarters
  • In the SBA case they/they only have one type of loan (SBA 7a – Business Loans) with 75% Guarantee portion and 25% Un-Guaranteed portion
  • They usually have a Loan Classification system and some amount of loan performance (default, recovery rates as well as concentration) history as well as a Loan Loss Reserve Methodology
  • They usually have a Business Plan Model with projections, that also includes our Loan Origination Projections for 3 years and existing Loan Servicing
  • They all usually have a line of credit to leverage our originations
  • They all sell the Guarantee pieces to the secondary market
  • In some cases they have securitized the Unguaranteed pieces
  • All loans are variable rate
  • The vendor thus has some parts provided by the Client/Institution but must customize the model for the available information
 
The main concern to SBA is the impact of occurrences/scenarios on our capital and liquidity, based on a Top Down Approach and somewhat of a bottom up portfolio level. (See the attachment). It also appears that a reasonable project timeline for each institution would be 2 month and the institution would likely run updated scenarios and validate assumptions 2 times per year (8 to 9 Quarters out).