Magazine article American Banker

FDIC Report Keeps Spotlight on Interest Rate Risk

Magazine article American Banker

FDIC Report Keeps Spotlight on Interest Rate Risk

Article excerpt

Byline: Joe Adler

WASHINGTON -- The Federal Deposit Insurance Corp. is keeping up the drumbeat on the importance of managing interest rate risk.

The agency's semiannual journal on supervisory issues released Thursday lays out effective governance strategies for dealing with rate risk exposure, emphasizes the need for realistic interest rate assumptions and details what examiners look for in interest rate risk reviews. One article also describes how banks can conduct an "in-house" independent review of their risk management.

"Because independent reviews can be costly when performed by external parties, many community banks find it is more practical and economical to complete this function internally," senior examiner Syed Islam wrote in the winter issue of the FDIC's Supervisory Insights publication.

All four articles in the journal focus on interest rate risk, echoing concerns the bank regulators have expressed for years -- including in earlier issues of the FDIC publication -- about the historically low rate environment. On Wednesday, the Office of the Comptroller of the Currency cited banks' exposure to sudden rate hikes in a report about prevalent risks facing the industry.

The article in the FDIC journal dealing with governance recommended banks develop asset-liability management policies that "establish clear lines of authority and responsibility; define allowable products, services, and activities; and include risk mitigation strategies. …

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