Financial Update (First Quarter 2010)
Fed, Other Regulators Advise Banks on Managing Interest Rate Risk
Emphasizing the importance of managing potential interest rate risks, regulators including the Federal Reserve recently issued advice to depository institutions concerning their supervisory expectations.
In the advice, the regulators acknowledged that some risk pertaining to interest rates is inherent in the banking business. "At the same time, institutions are expected to have sound risk-management practices to measure, monitor, and control interest rate risk exposures," the advisory said. "The financial regulators expect each depository institution to manage its interest rate risk exposures using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations."
Management goes beyond identification
The advisory reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the interest rate risk exposures of depository institutions. It also clarifies elements of existing guidance and describes interest rate risk-management techniques used by effective risk managers.
Bank holding companies also receive notice
In addition to the Fed, the financial regulators include the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Financial Institutions Examination Council State Liaison Committee.
January 27, 2010