Stress Testing in 2025: Preparing Financial Institutions for Economic Volatility

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As we enter 2025, financial institutions are navigating an increasingly complex and volatile economic environment. From fluctuating interest rates and inflation concerns to potential market disruptions, it’s more critical than ever for financial institutions to ensure they are prepared for economic shocks. One of the most effective ways to assess and mitigate risk is through stress testing. 

Stress testing, the process of simulating potential adverse economic conditions, helps financial institutions understand how their balance sheets and operations might react under extreme scenarios. This allows them to take proactive steps to manage risk and ensure they remain resilient during times of economic uncertainty. 

In this blog, we explore the importance of stress testing in 2025 and how financial institutions can use this tool to prepare for potential economic volatility. 

What is Stress Testing? 

Stress testing involves running simulations to model how a financial institution’s portfolio would perform under hypothetical, adverse conditions. These tests are typically focused on various economic scenarios, such as a severe recession, sudden interest rate hikes, market crashes, or systemic financial crises. 

Regulatory bodies like the Federal Reserve and OCC (Office of the Comptroller of the Currency) require certain financial institutions to conduct stress tests regularly to ensure they have adequate capital reserves to weather economic downturns. However, stress testing is not just a regulatory obligation—it’s a valuable tool for institutions to assess their internal risk management strategies and identify vulnerabilities. 

The Importance of Stress Testing in 2025 

As we move into 2025, stress testing will continue to be an essential component of financial institutions’ risk management strategies. The global economy remains in a period of uncertainty, with potential risks such as: 

  • Interest rate fluctuations: As central banks adjust rates in response to inflation or other economic factors, financial institutions must assess how these changes impact their capital and profitability. 
  • Inflationary pressures: Rising costs can affect consumer spending, corporate earnings, and overall economic growth, which can impact the financial health of institutions and their clients. 
  • Market volatility: Unpredictable market shifts, especially in the wake of global geopolitical events, can lead to significant volatility that affects financial institutions’ balance sheets. 
  • Credit risk: With economic uncertainty, the risk of borrowers defaulting on loans increases, impacting institutions with significant exposure to credit markets. 

Stress testing provides financial institutions with the ability to assess these risks in real time and prepare for various outcomes. It enables institutions to understand how different economic shocks would affect their operations, helping them identify weaknesses and take corrective actions in advance. 

Key Considerations for Financial Institutions 

1. Tailoring Stress Tests to Specific Risks 

While regulatory requirements often dictate certain stress test parameters, financial institutions should tailor their stress tests to reflect the unique risks they face. For example, a community bank with a high concentration of small business loans may need to stress test the effects of an economic slowdown on small business owners. Similarly, institutions with significant exposure to international markets may need to account for geopolitical risks in their stress scenarios. 

2. Incorporating Multiple Scenarios 

Financial institutions should run multiple stress scenarios to account for a range of potential risks. Some common scenarios to consider include: 

  • Adverse economic conditions (e.g., recession or stagflation) 
  • Interest rate hikes or cuts that could impact loan portfolios and capital adequacy 
  • Market disruptions that could affect liquidity and investments 
  • Pandemic or natural disaster scenarios that impact operations and loan repayment capabilities 

By considering a variety of scenarios, financial institutions can better prepare for a broader range of potential events and understand how their portfolio would perform under different circumstances. 

3. Assessing Capital Adequacy and Liquidity 

One of the primary objectives of stress testing is to assess an institution’s capital adequacy and liquidity in the face of economic adversity. It’s essential for financial institutions to determine whether they have sufficient reserves to absorb losses during periods of stress without jeopardizing their ability to operate. 

Stress tests can highlight potential capital shortfalls, liquidity issues, or areas where capital allocation needs to be adjusted. This allows institutions to take proactive steps, such as raising capital, diversifying investments, or adjusting their business models to mitigate these risks. 

4. Strengthening Governance and Risk Management 

Stress testing isn’t just about running simulations—it’s also about ensuring that governance structures and risk management processes are aligned to respond effectively to the results. Financial institutions should have clear plans for how to respond if stress test results indicate potential vulnerabilities. 

In addition to conducting stress tests, financial institutions should ensure that their risk management framework is equipped to handle the insights gained from these tests. This may involve adjusting business strategies, modifying credit policies, or bolstering internal controls. 

The Role of Technology in Stress Testing 

Advances in technology are helping financial institutions enhance their stress testing processes. The use of big data, AI, and machine learning can improve the accuracy of stress test models and enable institutions to simulate a wider variety of scenarios more quickly. 

For example, machine learning algorithms can analyze historical economic data to predict potential future risks with greater precision. Similarly, financial institutions can use cloud-based platforms to run real-time simulations and generate reports faster, enabling quicker decision-making and more effective risk management. 

Preparing for the Future 

As we look ahead to 2025 and beyond, it’s clear that stress testing will continue to play a crucial role in ensuring financial institutions are prepared for economic volatility. By investing in technology, customizing stress tests to their unique risks, and ensuring adequate capital reserves, financial institutions can safeguard their operations against future challenges. 

Now, more than ever, stress testing is not only about meeting regulatory requirements—it’s about building resilience and ensuring the long-term stability of financial institutions, regardless of what the future holds. 

How Brady Martz Can Help 

At Brady Martz, we assist financial institutions with comprehensive risk management strategies, including stress testing, capital adequacy analysis, and scenario modeling. Our team helps you assess potential vulnerabilities, optimize your capital structure, and ensure your institution is prepared for economic uncertainties in 2025 and beyond. 

Understanding the Evolving Role of Community Banks in a Digital World

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Community banks have long been the backbone of local economies, offering personalized services and fostering close relationships with customers. However, as the financial services landscape becomes increasingly digital, community banks are facing new challenges and opportunities. The rise of fintech, online banking, and mobile payment solutions has dramatically changed how people interact with financial institutions. As a result, community banks must adapt to the digital age while maintaining their core values of trust, local focus, and customer-centricity. 

In this article, we explore the evolving role of community banks in a digital world and how they can leverage technology to continue thriving in an increasingly competitive marketplace. 

The Digital Transformation of Banking 

The shift toward digital banking isn’t a passing trend—it’s the future of financial services. Online and mobile banking are now staples for customers who value convenience and real-time access to their financial information. From checking balances to transferring funds and even applying for loans, customers now expect digital solutions that provide easy access to their financial services anytime and anywhere. 

For community banks, this digital transformation represents both a challenge and an opportunity. On one hand, the rise of digital banking platforms created by larger national and international banks poses a competitive threat. On the other hand, embracing digital tools can allow community banks to enhance their services and improve customer satisfaction. 

Key Considerations for Community Banks 

As community banks look to navigate the digital landscape, several factors must be considered to ensure they remain relevant and competitive: 

1. Investing in Technology and Infrastructure 

To offer the digital banking services that customers now expect, community banks must invest in the right technology infrastructure. This includes: 

  • Mobile banking apps: Customers increasingly want to manage their accounts on the go, making mobile banking apps essential for community banks to stay competitive. 
  • Online banking platforms: A robust and secure online platform should allow customers to conduct basic banking functions, such as viewing accounts, transferring funds, and applying for loans. 
  • Cybersecurity: As digital banking grows, so does the risk of cyberattacks. Community banks must prioritize cybersecurity measures to protect sensitive customer data. 

These technologies not only help community banks compete with larger institutions but also enable them to improve customer service and operational efficiency. 

2. Maintaining Personalized Customer Service 

Despite the increasing reliance on technology, the core strength of community banks lies in their ability to provide personalized service. Many customers choose community banks because they appreciate the relationship-based model and the sense of trust that comes with knowing their banker personally. 

The challenge for community banks is to balance technology with a personal touch. Digital tools should be seen as a complement to the human relationships community banks have with their customers, not a replacement. Providing customer support through digital channels—such as chatbots, online messaging, and video consultations—while still maintaining a human connection will be key to success. 

3. Enhancing Financial Literacy and Inclusion 

In a digital world, financial literacy and inclusion become increasingly important. While many customers are tech-savvy, others may not be as familiar with new digital banking tools. Community banks have an opportunity to play a pivotal role in educating their customers about digital banking options, financial products, and services. 

Offering financial education programs—both online and in-person—can help customers feel more confident using digital tools and accessing financial services. By focusing on inclusion and accessibility, community banks can ensure they meet the needs of all customers, regardless of their digital proficiency. 

4. Collaborating with Fintech Partners 

Rather than seeing fintech as a competitor, community banks should explore potential partnerships. Fintech companies specialize in innovative, customer-centric technologies that can enhance the banking experience. By collaborating with fintech firms, community banks can offer cutting-edge digital services without having to build everything in-house. 

This could include partnering with fintech companies to offer peer-to-peer payment systems, lending platforms, or automated financial advice, thus expanding their service offerings and staying relevant in the digital era. 

The Future of Community Banks 

Looking ahead, the future of community banks lies in their ability to merge the best aspects of traditional banking with innovative digital solutions. By embracing technology while maintaining a focus on customer service, community banks can continue to thrive in a digital world. 

As digital banking grows, customers will continue to expect more from their financial institutions. Community banks that invest in the right technologies, provide excellent customer service, and stay true to their core values of trust and community will be well-positioned to meet these demands and lead the way in local financial services. 

How Brady Martz Can Help 

At Brady Martz, we understand the challenges community banks face in today’s digital environment. Our team can assist with technology adoption strategies, regulatory compliance, cybersecurity measures, and financial reporting. We help financial institutions navigate the complexities of the digital world while ensuring they maintain strong, personalized customer relationships. 

Preparing for an Exam – Key Considerations

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Exams and audits are an inevitable part of any financial institution’s lifecycle. Whether you’re facing a routine regulatory exam or an internal audit, how you prepare can make a significant difference in the outcome. Financial institutions must not only meet regulatory requirements but also demonstrate transparency, compliance, and a commitment to sound operational practices. 

Proper preparation can help ease the exam process, minimize potential findings, and ensure that your institution is positioned for long-term success. Here are some key considerations to keep in mind as you prepare for an upcoming exam. 

Understand the Scope of the Exam 

Before diving into the preparation process, it’s essential to clearly understand what the exam will cover. Exams can vary widely in scope depending on the institution’s size, complexity, and regulatory environment. The most common exams include: 

  • Safety and Soundness Examinations: These focus on the financial health and stability of the institution. 
  • Regulatory Compliance: These assess your adherence to regulatory requirements, consumer protection laws, and more. 
  • IT and Cybersecurity Exams: Given the growing reliance on technology, exams often include a review of your institution’s cybersecurity posture. 
  • Internal Audits: These may focus on specific operational areas, financial reporting, or even governance and internal controls. 

Ensure that you are clear on what exam is being conducted and what specific areas will be under scrutiny. This allows for a targeted and effective approach to preparation. 

Organize Your Documentation and Records 

One of the first steps in preparing for an exam is ensuring that all documentation and records are organized, accessible, and up to date. This includes: 

  • Financial statements: Ensure they are complete, accurate, and compliant with accounting standards. 
  • Policies and Procedures: Review internal policies to ensure they reflect current practices and compliance requirements. 
  • Compliance Records: Verify that all required reports and forms, including Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), and others, are up to date. 
  • Contracts and Agreements: Ensure that any contracts or legal agreements are stored correctly and easy to access. 

During the exam, you may be asked to provide evidence of your institution’s operations, decisions, or compliance with regulatory requirements. Having everything well-organized can save valuable time and demonstrate your institution’s commitment to compliance. 

Conduct an Internal Review 

Before the formal exam, conduct an internal review or pre-audit to identify any potential weaknesses or areas for improvement. This will help you identify gaps in your policies, procedures, or records and give you a chance to address them before regulators or auditors arrive. 

Key areas to review include: 

  • Internal controls: Are your internal controls robust enough to detect and prevent fraud or errors? 
  • Compliance with regulations: Ensure that you are fully compliant with the latest financial regulations, including those related to BSA/AML, data protection, and consumer rights. 
  • Audit trails: Verify that audit trails are complete and accurate for all transactions and processes. 

This internal review can help you identify potential issues that could arise during the exam and give you time to address them proactively. 

Communicate with Your Team 

Clear communication with your team is critical when preparing for an exam. Ensure that your key staff members are informed about the process, what’s expected of them, and their roles during the exam. It’s essential that everyone is on the same page so that the exam process goes smoothly. 

Consider scheduling internal meetings or training sessions to discuss the upcoming exam and any key areas of focus. This will help your staff understand the importance of the exam and the need for their cooperation. 

Plan for the Exam Day 

Finally, have a plan in place for the actual exam day. Designate a point of contact who will liaise with the examiners to streamline communication. Ensure that the necessary documentation is readily available, and make sure key personnel are available to answer any questions the examiners may have. 

A calm, organized approach to the exam will set a positive tone for the process and can help ensure that everything runs efficiently. 

How Brady Martz Can Help 

At Brady Martz, we assist financial institutions with thorough exam preparation, from organizing documents to conducting internal reviews and offering compliance support. Our team is well-versed in regulatory requirements and can provide guidance on how to ensure your institution is fully prepared for any upcoming exams or audits.  

BSA Modernization Proposal – What Does It Mean for Your Institution?

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In an evolving financial landscape, institutions are being asked to do more with less—and under increasing regulatory scrutiny. One of the most pressing updates in the compliance space is the proposed modernization of the Bank Secrecy Act (BSA). These changes aim to make anti-money laundering (AML) efforts more effective, data more useful, and compliance more aligned with risk. 

But what exactly does this modernization proposal involve—and how might it impact your financial institution? 

 

The Push for Modernization 

The Financial Crimes Enforcement Network (FinCEN), in coordination with federal banking agencies, has been working toward modernizing the BSA framework to improve transparency, streamline processes, and better detect illicit activity. The proposal reflects years of dialogue between regulators and financial institutions about the need for a risk-based approach to BSA compliance, rather than the current “check-the-box” system. 

Notably, the proposed rules would formally require institutions to conduct a BSA risk assessment, elevating a practice that is currently only strongly encouraged. Additionally, under the modernization, institutions will need to revise references to the Bank Secrecy Act throughout their compliance programs—updating the language to refer to an AML/CFT Program (Anti-Money Laundering/Countering the Financing of Terrorism). This means BSA Officer titles, policies, and procedures may need to be renamed or adjusted to align with the new terminology. 

The goal is not simply to add more rules—but to ensure institutions focus their resources where they matter most. 

 

Key Areas of Focus in the Proposal 

Here are some of the core changes being considered: 

  1. Risk-Based AML Program Requirements
    Institutions will be expected to design and implement AML programs specifically tailored to their size, complexity, and risk profile. This represents a shift from standardized practices to institution-specific controls and monitoring. 
  1. Enhanced Usefulness of SARs
    A major objective of the modernization is to improve the usefulness of Suspicious Activity Reports (SARs) for law enforcement. Institutions may be expected to provide more actionable intelligence, with clearer narratives and more thorough documentation of suspicious patterns. 
  1. Stronger Collaboration with Law Enforcement
    The proposal encourages more proactive and structured communication between financial institutions and law enforcement—especially around emerging threats. Institutions that participate in programs like FinCEN’s 314(b) may find themselves in a stronger position under the new rules. 
  1. Leveraging Technology and Innovation
    Regulators are acknowledging the growing role of technology—such as artificial intelligence and automated transaction monitoring—in AML compliance. The proposal supports institutions that adopt innovative tools to enhance compliance effectiveness. 

 

What Financial Institutions Should Be Doing Now 

Although the BSA modernization proposal is not yet finalized, institutions should begin preparing by: 

  • Evaluating their existing BSA/AML program to ensure it aligns with a risk-based framework 
  • Formalizing a comprehensive BSA risk assessment, if not already in place 
  • Updating officer titles, policies, and procedures to reflect the AML/CFT designation 
  • Improving internal documentation and procedures for SARs and CTRs 
  • Exploring partnerships or software solutions that can streamline monitoring and reporting 
  • Training compliance teams on the direction of upcoming changes and what to expect 

Proactively aligning with these expected changes will help institutions make a smoother transition when final rules are issued—and may reduce both regulatory and operational risk. 

 

How Brady Martz Can Help 

At Brady Martz, we help financial institutions navigate complex regulatory environments with clarity and confidence. Our professionals understand the nuances of BSA/AML compliance and can assist with risk assessments, program evaluations, and process improvements tailored to your institution’s needs. 

 

Managing Interest Rate Risk: Financial Institutions’ Strategy Guide

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Interest rate fluctuations present significant challenges for financial institutions, impacting profitability, liquidity, and overall financial stability. As market conditions evolve, institutions must proactively manage interest rate risk (IRR) to protect assets and maintain regulatory compliance. This guide explores best practices for financial institutions looking to strengthen their IRR management strategies in 2025 and beyond. 

Understanding Interest Rate Risk 

Interest rate risk arises when changes in interest rates affect an institution’s earnings or economic value. Key components of IRR include: 

  • Repricing Risk: The impact of interest rate changes on assets and liabilities that reprice at different intervals. 
  • Basis Risk: Variability in interest rate movements between assets and liabilities with similar repricing characteristics. 
  • Yield Curve Risk: Changes in the shape of the yield curve affecting interest-sensitive instruments. 
  • Optionality Risk: The risk arising from embedded options in financial contracts, such as loan prepayments or deposit withdrawals. 
Best Practices for Managing Interest Rate Risk 
  1. Develop a Comprehensive IRR Policy

Financial institutions should establish a robust IRR framework that outlines risk tolerance levels, measurement methodologies, and response strategies. A well-documented policy ensures consistency and alignment with regulatory expectations. 

  1. Implement Advanced Risk Measurement Techniques

Utilizing sophisticated risk assessment tools, such as gap analysis, duration analysis, and scenario modeling, enables institutions to quantify potential impacts and adjust strategies accordingly. 

  1. Diversify Interest Rate Exposures

A diversified balance sheet helps mitigate IRR. Institutions should maintain a mix of fixed and variable rate assets and liabilities, reducing the impact of rate fluctuations. 

  1. Utilize Hedging Strategies

Hedging instruments, including interest rate swaps, caps, and futures, can provide protection against adverse interest rate movements. Institutions should assess the cost-effectiveness of these tools within their risk management approach. 

  1. Strengthen Asset-Liability Management (ALM)

A well-structured ALM process ensures that interest rate-sensitive assets and liabilities are managed effectively. Regular ALM committee meetings help institutions adjust strategies based on economic forecasts and market trends. 

  1. Conduct Stress Testing and Scenario Analysis

Regular stress testing evaluates the institution’s resilience under various interest rate environments. Scenario analysis enables proactive decision-making by assessing the potential impact of rate changes on financial performance. 

  1. Maintain Strong Regulatory Compliance

Regulatory bodies, including the Federal Reserve and FDIC, require institutions to implement robust IRR management practices. Keeping up with evolving regulatory requirements ensures compliance and minimizes financial risk. 

How Brady Martz Supports Interest Rate Risk Management 

At Brady Martz, we assist financial institutions in navigating the complexities of interest rate risk management. Our team provides tailored solutions, from risk assessment to regulatory compliance, helping institutions safeguard profitability and stability in a fluctuating rate environment. 

By adopting proactive IRR management strategies, financial institutions can mitigate risks, enhance financial resilience, and position themselves for long-term success. 

Contact Brady Martz today to learn how we can support your interest rate risk management initiatives. 

 

AML Compliance in 2025: Staying Ahead of Money Laundering Threats

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As financial crimes become increasingly sophisticated, financial institutions must stay ahead of evolving money laundering threats. Anti-Money Laundering (AML) compliance in 2025 requires a proactive approach that leverages advanced technology, regulatory adherence, and continuous risk assessment. Financial institutions must refine their strategies to detect and prevent illicit financial activities while maintaining operational efficiency. 

The Evolving Landscape of Money Laundering 

Financial criminals continue to exploit vulnerabilities in banking systems, digital transactions, and cryptocurrency networks. With regulatory bodies tightening AML requirements, financial institutions must enhance their compliance frameworks to mitigate risks and avoid substantial penalties. 

Key Challenges in AML Compliance: 
  • Regulatory Changes: Increased scrutiny and evolving global AML regulations require continuous monitoring and adaptation. 
  • Emerging Threats: Cybercriminals leverage AI, blockchain, and decentralized finance (DeFi) platforms to launder money undetected. 
  • Data Overload: Financial institutions must process vast amounts of transaction data while identifying suspicious activities in real time. 
  • Cost of Compliance: Implementing robust AML programs requires significant investments in technology, personnel, and training. 
Best Practices for AML Compliance in 2025 
  1. Implement AI-Driven Transaction Monitoring

Advanced artificial intelligence and machine learning algorithms can enhance transaction monitoring, identifying suspicious patterns and reducing false positives. AI-powered solutions improve efficiency and accuracy in AML investigations. 

  1. Strengthen KYC and Customer Due Diligence (CDD)

Enhanced Know Your Customer (KYC) protocols ensure thorough identity verification, risk profiling, and ongoing monitoring of high-risk customers. Robust CDD measures help prevent fraudulent activities before they escalate. 

  1. Leverage Blockchain Analytics

With the rise of digital currencies, financial institutions must integrate blockchain analysis tools to track and trace illicit crypto transactions. Blockchain transparency aids in identifying suspicious wallet activity and enhancing compliance efforts. 

  1. Automate Regulatory Reporting

Automated compliance reporting reduces manual errors and streamlines the submission of Suspicious Activity Reports (SARs). Technology-driven regulatory adherence ensures timely reporting and minimizes the risk of non-compliance. 

  1. Foster Cross-Border Collaboration

Money laundering is a global challenge requiring cooperation between financial institutions, regulatory agencies, and law enforcement. Information sharing and collaboration enhance the ability to combat illicit financial flows effectively. 

  1. Conduct Regular AML Training and Audits

Ongoing staff training ensures employees stay updated on AML regulations, red flags, and reporting procedures. Routine audits and stress testing help identify compliance gaps and reinforce internal controls. 

How Brady Martz Supports Financial Institutions in AML Compliance 

At Brady Martz, we specialize in helping financial institutions navigate the complexities of AML compliance. Our team provides expert guidance on regulatory changes, risk assessments, and technology integration to enhance financial crime prevention strategies. 

By adopting a proactive approach to AML compliance, financial institutions can safeguard their operations, protect customers, and maintain regulatory integrity in 2025 and beyond. 

Contact Brady Martz today to learn how we can support your AML compliance efforts. 

Empowering Growth: Brady Martz’s Professional Development and Excellence Academy

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At Brady Martz, we are deeply committed to the professional growth of our financial institutions’ clients. As part of this commitment, we’ve launched The Brady Martz Professional Development and Excellence Academy, a formal mentorship program designed to help financial institution employees thrive in their current roles and build the skills necessary to take on new challenges and responsibilities.  

We recently had a chance to sit down with our own Kelly Hoeven, a key figure in creating the academy. Kelly is a Financial Institutions Consultant at Brady Martz, who has a passion for mentoring and building connections among professionals in the field. With a background in banking and regulatory, Kelly has spent time at various financial institutions, and she has also worked as an FDIC examiner. With her strong experience and skillset, Kelly helped create The Brady Martz Professional Development and Excellence Academy with a goal of fostering professional development and setting financial institution employees up for success in their current and future roles. 

Why We Created the Academy 

The Brady Martz Professional Development and Excellence Academy was created with one goal in mind: to foster a culture of mentorship that empowers employees within the financial institution community to reach their full potential. We recognized the immense value mentorship brings in developing both technical and soft skills, and we wanted to create an opportunity for financial institutions to offer structured guidance to their employees. Through this program, we aim to help develop stronger, more effective leaders—individuals who are equipped to drive their organizations forward while advancing their careers. 

How the Academy Works 

The Brady Martz Professional Development and Excellence Academy offers both one-on-one and group mentorship options, providing flexibility to meet the unique needs of each FI employee. In one-on-one mentorship, mentees are paired with experienced mentors who can provide personalized guidance and advice. Group mentorship, on the other hand, brings together FI employees with similar roles or aspirations, creating a collaborative environment where learning and growth happen through shared experiences. 

The program is designed to be flexible, typically lasting 12 to 18 months. Each mentee works closely with their mentor to establish specific career goals, and the mentorship relationship is centered on achieving those objectives through regular feedback, support, and actionable steps. 

Who Participates in the Academy? 

The program is open to all financial Institution employees looking to advance their careers. Whether an individual is aiming to refine their technical skills, develop leadership qualities, or transition into a new role, the academy offers the resources and mentorship they need to succeed. 

The involvement of supervisors and management is key to the program’s success. Supervisors work alongside mentors to ensure that the developmental goals align with both the employee’s aspirations and the firm’s long-term goals. This collaborative approach ensures that both the individual and the organization benefit from the mentorship experience. 

Why Mentorship Matters 

Mentorship goes beyond career development. It’s about building meaningful relationships and supporting one another’s growth. At Brady Martz, we believe that mentorship creates an environment where both the mentor and mentee can learn from each other and grow together. Mentors offer more than just professional advice; they provide the perspective, encouragement, and insight that are essential for overcoming obstacles and building confidence in one’s career path. 

Mentorship also fosters a sense of community within your company. By investing in one another’s growth, you create a stronger, more cohesive team that is united by a shared commitment to excellence. 

The Benefits of Mentorship 

For mentees, the benefits of participating in a mentorship program are immense. Not only do they gain technical expertise and valuable career insights, but they also develop crucial soft skills such as communication, leadership, and time management. Additionally, mentorship often opens doors to networking opportunities, allowing mentees to connect with other professionals in the financial sector. 

For the mentors, the rewards are equally valuable. Serving as a mentor provides an opportunity to give back, share knowledge, and help shape the next generation of leaders within the financial industry. Mentors also gain fresh perspectives from their mentees, making the relationship mutually beneficial. 

The Organizational Impact of Mentorship 

The Brady Martz Professional Development and Excellence Academy isn’t just about developing individual professionals—it’s about strengthening entire financial institutions. By investing in the growth of their employees, community banks and credit unions can enhance retention, improve job satisfaction, and cultivate a more engaged workforce. These benefits contribute to long-term organizational success and reinforce a strong leadership pipeline within the financial sector. 

Are You Interested in Learning More? 

If you’d like to learn more about The Brady Martz Professional Development and Excellence Academy and how it can support the growth of your employees, Kelly Hoeven, who leads the program, would be happy to connect with you! Kelly can provide more details about how the program works and how it helps individuals develop both professionally and personally. Reach out to Kelly to find out how you can get involved or learn more about the academy’s impact on your financial institution. 

Regulation B Subpart B Section 1071

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What’s the Game Plan?  

Regulation B Section 1071 mandatory compliance is quickly approaching and it’s not a small undertaking. This new rule requires an extensive amount of data collection from lenders who have typically stayed out of the compliance spotlight – small business lenders. The rule is designed to create increased transparency on lending practices and opportunities to small businesses loan applicants, identify any unmet credit needs, and enforce fair lending laws.  

 

The mandatory compliance dates are tiered based on the number of covered small business loans originated in each of the previous two calendar years. The table below illustrates the compliance date tiers that financial institutions will need to consider when determining when they must begin collecting data and otherwise complying with the final rule: 

 

Compliance Date Tier  Origination Threshold for the Compliance Date Tier  Date That A Covered Institution Begins Data Collection & Otherwise Complying with the final Rule  Deadline for A Covered Financial Institution to Report First Year of Data to the CFPB 
Tier 1  At least 2,500 covered originations in both 2022 and 2023 (or 2023 and 2024)  July 18, 2025*  June 1, 2025* 
Tier 2  At least 500 covered originations in both 2022 and 2023 but not 2,5000 or more covered originations in both 2022 and 2023 (or 2023 and 2024)  January 16, 2025*  June 1, 2027* 
Tier 3  At least 100 covered originations in both 2022 and 2023 but not 500 or more covered originations in both 2022 and 2023 (or 2023 and 2024)  October 18, 2026*  June 1, 2027 
Additionally, a bank that originates at least 100 covered originations in both 2024 and 2025 must collect data and otherwise comply with the final rule beginning October 18, 2026 (regardless of the number of covered originations it originated in prior years). 

 

*The following dates have been updated to reflect the extended compliance data revised in the June 25, 2024 Interim Final Rule. 

 

If the bank is unable to determine the number of covered credit transactions it originated for small businesses in each of the calendar years 2022 an 2023 (or 2023 and 2024) for purposes of determining its compliance date, because of some or all of this period it does not have readily accessible the information needed to determine whether its covered credit transactions were originated for small businesses as defined in § 1002. 106(b), it is permitted to use any reasonable method to estimate its originations to small businesses for either or both of the calendar years 2022 and 2023 (or 2023 and 2024). 

 

So, what’s next? Here are action items to consider in your implementation plan: 

 

  • Coverage and Compliance Dates: Determine how many covered transactions your institution originated during the two-year lookback period (the final rule allows institutions to use either 2022 and 2023 or 2023 and 2024 as the two-year lookback) and identify the related mandatory compliance date for collecting and reporting.  
  • IT Systems: Identify the software and IT systems that will be used to collect, store, and transmit the data to the small business loan application register (SBLAR). Determine if any new software purchases are necessary and contact your current loan software providers for details on how the current software is going to change to comply with the increased data collection requirements. Schedule a demo with current and any new potential software providers.  
  • Policies and Procedures: Expand or create new policies and procedures to address the expectations for the new rule. The procedures should outline your institution’s process for collecting data in a way that ensures all the required data points are collected and reported in a compliant manner. Additionally, policies and procedures should address updates to roles and responsibilities. All policies should be reviewed and approved by the Board of Directors prior to the mandatory compliance date.  
  • Firewall Component: Section 1071 includes a specific rule related to accessing an applicant’s demographic information. The final rule states that employees and officers of a covered financial institution are prohibited from accessing an applicant’s demographic information that is recorded during the application process. This poses a challenge for many financial institutions whose loan officers are involved in all aspects of the application process. For this reason, the final rule permits financial institutions to simply provide an exception notice to applicable applicants or to a broader group (all) of applicants. However, your financial institution must first determine if it is able to systematically create a firewall or if it will rely upon the exception notice. As a best practice, your institution should retain evidence of how it arrived at the decision to create a firewall or rely upon the notice. 
  • Employee Roles and Responsibilities: Review and update current job descriptions to align with any process changes necessary for implementing Section 1071. It is likely that your institution’s lenders, processors, managers, and compliance personnel will have changes to their roles and responsibilities. Work with your HR professionals to update job descriptions so that their performance can be evaluated based on their updated roles. This will also serve as the support analysis for any firewall decisions. 
  • Written Applications: Determine how your institution will collect the data. With more than 81 data point fields, there is clear justification for using a written application form. Additionally, covered financial institutions can begin collecting data one year prior to their mandatory collection date. 
  • Underwriting Practices and Fair Lending Implications: Review your institution’s current underwriting practices. This data collection rule will have significant fair lending impacts for agricultural and commercial loan portfolios. Regulatory agencies will have access to significant amounts of data and will likely incorporate this into future fair lending examinations. Your institution should identify any potential fair lending red flags related to its underwriting, pricing, and origination/denials practices.  
  • Training and Monitoring: Prepare your loan staff and compliance personnel for the aspects of data collection, review, and reporting that they will be responsible for. This is a crucial step to ensuring regulatory compliance with the final rule. Establish an ongoing monitoring process to identify any gaps in the data collection and reporting processes and to ensure that the demographic data is consistently collected where required.  
  • Audit Expectations and Board Reporting: Update your current risk assessments and audit plans to incorporate Section 1071. Make sure to keep the Board informed of changes to your institution’s audit plans and any significant updates to the risk assessment.  
  • Website Notice: Set a reminder to post the required public notice on your institution’s website by the first reporting date (e.g., June 2026 or 2027).  

 

Implementing the Section 1071 final rule will take careful consideration and effort by your institution. At Brady Martz & Associates, we understand the challenges that come with implementing processes to comply with complex regulations. Our team of experts can help you assess your readiness, develop a tailored implementation strategy, and ensure your institution remains compliant while achieving its business goals. Contact us today to learn how we can support your compliance journey. 

 

Ryan Bakke, CPA 

701-852-0196 

ryan.bakke@bradymartz.com 

 Kelly Hoeven, CCBIA CBVM 

701-223-1717 

kelly.hoeven@bradymartz.com 

 

 

Regulation B Section 1071: Implementation Best Practices for Financial Institutions

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The financial industry is facing a significant shift with the implementation of Regulation B Section 1071, as mandated by the Dodd-Frank Act. This new rule introduces extensive data collection and reporting requirements for financial institutions making small business loans. Designed to promote fairness and transparency in lending, Regulation B Section 1071 seeks to uncover and address potential discrimination in credit access for small businesses, particularly those owned by women and minorities.

While the regulation represents a step forward for equitable lending practices, it also introduces operational and compliance challenges. For financial institutions, understanding the requirements and developing a strong implementation plan will be critical for navigating these changes.

In this blog, we’ll explore key considerations and best practices for implementing Section 1071 to ensure compliance while maintaining efficiency in your institution’s processes.

Understanding Regulation B Section 1071

Under Section 1071, financial institutions are required to collect and report data on applications for credit from small businesses. This includes gathering information on the race, ethnicity, and gender of the business owner(s), as well as the loan amount, application outcome, and pricing terms. The goal is to promote fair lending and provide policymakers with insight into access to credit across different demographics.

The rule applies to institutions that originated at least 100 small business loans in the previous two calendar years, covering a wide range of credit products such as term loans, lines of credit, and business credit cards. Noncompliance with Section 1071 can result in regulatory scrutiny, fines, and reputational harm.

With the compliance deadline approaching, financial institutions must take proactive steps to prepare for the implementation of this regulation.

Best Practices for Implementing Section 1071

To ensure a smooth transition and ongoing compliance, financial institutions should consider the following best practices:

  1. Conduct a Gap Analysis

Begin by reviewing your current loan application and reporting processes to identify gaps in compliance with Section 1071. Evaluate your institution’s ability to collect the required data points, and assess whether your existing systems and procedures can support the additional reporting requirements.

Key Considerations:

  • Are your loan officers trained to collect demographic information?
  • Do your current systems accurately capture and store the required data?
  • Is your team aware of fair lending rules and how to handle sensitive customer information?
  1. Upgrade Your Technology and Data Management Systems

Effective implementation of Section 1071 requires robust data collection, storage, and reporting capabilities. Financial institutions may need to upgrade their loan origination systems (LOS), customer relationship management (CRM) platforms, and data analytics tools to meet these demands.

Best Practices:

  • Implement systems that can securely capture and store sensitive demographic data.
  • Automate reporting processes to reduce the risk of errors and streamline compliance efforts.
  • Invest in technology solutions that support efficient data analysis for fair lending reviews.
  1. Train Staff on Compliance and Customer Communication

Collecting demographic information requires careful communication with customers to ensure transparency and compliance with fair lending regulations. Loan officers and other front-line staff should receive training on how to explain the purpose of data collection and handle customer concerns.

Training Tips:

  • Develop clear, customer-friendly explanations about why demographic data is being collected.
  • Train staff to address customer questions while remaining compliant with regulatory requirements.
  • Emphasize the importance of unbiased interactions during the loan application process.
  1. Establish Monitoring and Reporting Protocols

Regular monitoring of your institution’s data collection and reporting processes will be critical to ensuring ongoing compliance with Section 1071. Establish clear protocols for reviewing loan data, identifying discrepancies, and addressing potential issues.

Steps to Take:

  • Develop a reporting schedule to ensure timely submission of data to regulators.
  • Use data analytics to identify trends and detect potential fair lending risks.
  • Conduct internal audits to verify the accuracy of collected data and ensure adherence to regulatory requirements.
  1. Collaborate with Industry Peers and Experts

Compliance with Section 1071 is a complex task that benefits from collaboration. Financial institutions can engage with industry groups, consultants, and legal experts to share insights, develop best practices, and navigate challenges.

Benefits of Collaboration:

  • Gain access to industry-specific resources and case studies.
  • Stay informed about regulatory updates and interpretations.
  • Leverage the expertise of third-party consultants to enhance your compliance efforts.

The Path Forward: Building a Culture of Compliance

Implementing Regulation B Section 1071 is about more than meeting regulatory requirements—it’s an opportunity for financial institutions to foster transparency, fairness, and trust with their small business customers. By developing a robust compliance plan, investing in technology and training, and maintaining a proactive approach to risk management, your institution can successfully navigate this new regulatory landscape.

At Brady Martz, we understand the unique challenges financial institutions face in implementing complex regulations like Section 1071. Our team of experts can help you assess your readiness, develop a tailored implementation strategy, and ensure your institution remains compliant while achieving its business goals. Contact us today to learn how we can support your compliance journey.

Risk Assessments – Not a One and Done

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In today’s ever-changing business environment, organizations face new challenges daily, from evolving market conditions to emerging cybersecurity threats. As a result, the concept of risk assessment has become more critical than ever. However, many companies make the mistake of viewing risk assessments as a one-time task instead of an ongoing, strategic process.

This mindset can leave organizations vulnerable, as risks evolve alongside changes in technology, industry regulations, and global markets. To truly protect your business and remain resilient, risk assessments must be treated as a continuous process that adapts to the shifting landscape.

What Is a Risk Assessment?

A risk assessment is the process of identifying, analyzing, and prioritizing potential risks that could impact your business. These risks may include operational inefficiencies, financial vulnerabilities, compliance issues, or cybersecurity threats.

A comprehensive risk assessment typically involves:

  • Identifying potential risks or vulnerabilities.
  • Analyzing the likelihood and impact of those risks.
  • Developing mitigation strategies to reduce risk exposure.

While many businesses conduct risk assessments during audits or after a significant event (such as a data breach), a “set it and forget it” approach often leads to gaps that can compromise an organization’s stability and reputation.

Why Risk Assessments Must Be Ongoing

Risks are not static. Here are some key reasons why businesses should adopt an ongoing approach to risk assessments:

  1. Evolving Threats and Trends

Technology is advancing at an unprecedented rate, and so are the threats. For example, as businesses rely more on digital platforms, cybersecurity risks like ransomware, phishing, and insider threats continue to grow. A risk assessment conducted last year may not account for these new vulnerabilities.

  1. Regulatory Changes

Governments and industry regulators frequently update compliance requirements to address emerging risks. Without periodic risk assessments, businesses may inadvertently fall out of compliance, exposing themselves to penalties, fines, or reputational damage.

  1. Internal Changes

Internal changes such as staff turnover, mergers and acquisitions, or the implementation of new technologies can create unforeseen risks. Conducting risk assessments regularly ensures that new processes, people, or systems are incorporated into your risk management strategy.

  1. Market and Economic Shifts

Market volatility and global events, like inflation, supply chain disruptions, or geopolitical tensions, can introduce new financial and operational risks. Ongoing assessments help organizations stay proactive and ready to pivot as conditions change.

Best Practices for Continuous Risk Assessments

To embed risk assessments into your business processes effectively, consider these best practices:

  1. Schedule Regular Risk Reviews

Conduct risk assessments on a scheduled basis, such as quarterly, semi-annually, or annually, depending on your industry and risk exposure.

  1. Involve Cross-Functional Teams

Risk management isn’t just the responsibility of one department. Involve leaders from IT, finance, HR, operations, and other key areas to ensure all perspectives are considered.

  1. Leverage Technology

Use risk management software or tools to automate parts of the process, such as tracking risks, generating reports, or monitoring compliance metrics in real time.

  1. Align with Strategic Goals

Risk assessments should align with your organization’s long-term objectives. This ensures that resources are allocated toward mitigating risks that could derail your key initiatives.

  1. Perform Scenario Planning

In addition to analyzing current risks, consider potential “what-if” scenarios. This proactive approach can help you prepare for unexpected events.

Don’t Treat Risk Assessments as a Checklist

Risk assessments are not a one-and-done task—they are an ongoing commitment to safeguarding your organization from the unexpected. By adopting a continuous approach to risk management, you can stay ahead of potential challenges, protect your business assets, and build long-term resilience.

At Brady Martz, our experienced professionals can guide you through the risk assessment process, helping you identify vulnerabilities, develop mitigation strategies, and create a proactive plan to keep your business secure. Contact us today to learn how we can help you protect your organization and prepare for the future.