Last week the FDIC released the Winter 2014 issue of its Supervisory Insights journal. This issue weighs-in with a whopping 44+ pages (it's never really been larger than 32 or so.) The entire issue is dedicated to Interest Rate Risk, including these articles:
- "Effective Governance Processes for Managing Interest Rate Risk" - discusses supervisory expectations for a community bank's IRR governance process and presents ideas for mitigating on- and off-balance sheet risk.
- "Developing the Key Assumptions for Analysis of Interest Rate Risk" - describes common sense approaches for developing the assumptions necessary to analyze interest rate sensitivity in the current environment.
- "Developing an In-House Independent Review of Interest Rate Risk Management Systems" - describes ways that smaller institutions may be able to effectively and economically perform an in-house IRR independent review.
- "What to Expect During an Interest Rate Risk Review" - describes what examiners focus on during an IRR review, supervisory expectations with respect to IRR, and communication with the FDIC during an examination.
In my opinion the best part is page 25 which shows a sort of checklist for performing an in-house independent review of an IRR management system. But as nice as this checklist is - it is really the only highlight in the document. In general the entire document is an overview of current regulatory expectations surrounding IRR and it presents few new nuggets of information. It rehashes a bunch of old material including a fair share of references back to the original Joint Policy Statement on IRR from 1996.
Reading the entire journal is a bit of a slog. Here's one sample sentence that starts on page 3 and ends waaaaaay over on page 4:
Frequently, the recorded minutes of board and asset-liability management committee (ALCO) meetings at well-rated institutions include director comments or questions on matters that go beyond the current and prospective interest rate environment and include pricing strategies, product mix, and most notably, the rationale behind policy deviations and underlying causes of changes in the bank’s risk profile.