Regulatory guidelines call for banks to review each step of the interest rate risk (IRR) management process for integrity and reasonableness. This includes corporate governance, model output, and back-testing analysis. Organizations such as the OCC, FDIC, FRB, and NCUA have issued statements containing guidelines to manage IRR, including “Interagency Advisory on Interest Rate Risk Management” and OCC Bulletin 2011-12 “Supervisory Guidance on Model Risk Management.”
These documents stipulate that all institutions are expected to have internal controls to ensure the integrity of all elements of the IRR management process. To meet these complex standards, it’s recommended that IRR policies, procedures, and models are reviewed annually by a third party independent of the IRR management process at the bank.
Why not turn a regulatory exercise into a chance to make improvements?
We’ll dive in and take a look at ways you can improve your process by incorporating best practices for managing, monitoring, and controling interest rate risk. We’ll work closely with your institution and the model provider to gather appropriate data and develop a customized report based on the unique characteristics of your organization.
We’ll assist with:
- Compliance with IRR Policy, Duties/Responsibilities of ALCO and the Board, review of ALCO meeting minutes, Net Interest Income and Economic Value of Equity risk limits, Stress Testing, etc.
- Suitability of the risk measurement system, accuracy of source data into the model, review of validity of assumptions (loan prepayment speeds, deposit beta and decay assumptions), etc.
- Back-Testing of Net Interest Income, the Balance Sheet, and yields/costs.
- Recommendations and advice on best practices to improve the IRR process, maximize the usefulness of the model, and meet regulatory requirements.