Interest Rate Risk

As financial institutions begin to see the light at the end of the tunnel with respect to asset quality issues, regulators are increasing their focus on what they view as an increasing threat to financial institution balance sheets:  namely, interest rate risk.  Given the current historically low interest rate environment, and the length of time these extremely low interest rates are expected to persist, regulators have expressed concern that financial institutions looking to preserve net interest margin may be structuring their balance sheets in ways which might be detrimental to the safety and soundness of the institutions when interest rates finally do increase.  As a result, regulators have increased their level of expectation with regard to interest rate risk modeling and monitoring activities being carried out by financial institutions.

Covered Topics

  • Sources and measurement of interest rate risk (IRR)
  • Regulatory Expectations Regarding IRR
  • Model Capabilities
  • Risk Limits and Other Policy Items
  • Independent Model Validations
  • Board of Director Reporting and Review
  • Stress Testing