In addition, supervisors also noted the lack of downside risk analysis or stress testing as a weakness in risk management practices at many banks. Recent credit losses have highlighted the importance of following those sound lending and evaluation fundamentals and have clearly differentiated strong credit risk management systems from weak ones, prompting many organizations to take remedial action.
For the past several years, the banking agencies have shifted their supervisory approach to focus on risk management processes at banking organizations as a more effective means for promoting sound banking practices. While bank risk management practices have improved, in part because of supervisory efforts, recent experience has shown that more work needs to be done.