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Banker Resource Center
Interest rate risk is the exposure of a bank’s current or future earnings and capital to adverse changes in market rates. This risk is a normal part of banking and can be an important source of profitability and shareholder value; however, excessive interest rate risk can threaten banks’ earnings, capital, liquidity, and solvency. Therefore, it is important to effectively identify, measure, monitor, and control interest rate risk exposure through effective policies and risk management processes.
Laws and Regulations
Key laws and regulations that pertain to FDIC-supervised institutions; note that other laws and regulations also may apply.
- Appendix A to Part 364 — Interagency Guidelines Establishing Standards for Safety and Soundness provides operational and managerial standards for safety and soundness to include interest rate risk
Supervisory Resources
Frequently asked questions, advisories, statements of policy, and other information issued by the FDIC alone, or on an interagency basis, provided to promote safe-and-sound operations.
- Joint Agency Policy Statement on Interest Rate Risk provides information on sound interest rate risk management practices
- Financial Institution Management of Interest Rate Risk clarifies and reinforces risk management practices outlined in the Joint Agency Policy Statement on Interest Rate Risk
- Frequently Asked Questions address exposure measurement and reporting, model risk management, stress testing, assumption development, and model and systems validation
- Supervisory Policy Statement on Investment Securities and End-User Derivatives Activities provides guidance on risk management processes to include policies, risk limits, reporting of risk exposures, and a system of internal controls
- Managing Sensitivity to Market Risk in a Challenging Interest Rate Environment re-emphasizes the importance of developing a comprehensive asset-liability and interest rate risk management program
- Section 7.1 — Sensitivity to Market Risk of the Risk Management Manual of Examination Policies discusses the various types of market risk, a risk management framework, and examination processes and rating criteria used for safety and soundness examinations
Other Resources
Supplemental information related to safe-and-sound banking operations
- FDIC’s Supervisory Insights — Winter 2014 is focused on interest rate risk and includes articles on effective governance processes, developing key assumptions for analysis, creating an independent review system, and what to expect during an interest rate risk review
- FDIC’s Supervisory Insights — Winter 2013 article, “Industry Trends Highlight Importance of Effective Interest-Rate Risk Management”
- Interest Rate Risk in the Banking Book issued by the Basel Committee on Banking Supervision provides standards for internationally-active institutions
Videos/Webcasts/Teleconferences
Informational videos and recordings of prior webcasts and teleconferences.
For Board Members:
- The Managing Interest Rate Risk technical assistance video provides an overview of interest rate risk and how boards can best oversee this area.
For Banker:
- The Types of Interest Rate Risk technical assistance video describes the types of interest rate risk, including examples.
- The Measurement Systems technical assistance video provides information regarding the various interest rate risk measurement systems.
- This Deposit Assumptions technical assistance video describes various deposit assumptions used by banks in the measurement of interest rate risk.
- This Rate Changes and Prepayment Assumptions technical assistance video describes rate changes and prepayment assumptions used by banks in the measurement of interest rate risk.
- This Risk Limits and Mitigation technical assistance video provides information pertaining to establishing risk limits and setting mitigation strategies used for interest rate risk management.
- This Internal Control and Review technical assistance video describes internal controls used for and independent reviews of the interest rate risk management process.
The FDIC’s Technical Assistance Video Program includes educational videos designed to provide bank directors, officers, and employees with useful information about areas of supervisory focus and regulatory changes.
