Interest Rate Risk (IRR)
The FDIC has consolidated a number of resources relating to Interest Rate Risk.
This webpage will allow users to:
- Review rules and guidance for Interest Rate Risk management for FDIC supervised depository institutions.
- Browse recent news and press releases, financial institution letters, and related documents regarding Interest Rate Risk management.
Interest Rate Risk
Interest rate risk is the exposure of a bank’s current or future earnings and capital to adverse changes in market interest 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. Accordingly, boards of directors should ensure that management effectively identifies, measures, monitors and controls interest rate risk through effective policies and risk management processes.
Standards for Large Internationally-Active Institutions
In April 2016, the Basel Committee on Banking Supervision issued Interest Rate Risk in the Banking Book standards, which revise the 2004 Principles for the Management and Supervision of Interest Rate Risk. These standards apply to internationally-active institutions. The international standards do not apply to community banks.
The standards reflect changes in market and supervisory practices since the Principles were first published in 2004, which is particularly pertinent in light of the current exceptionally low interest rates in many jurisdictions. The revised standards, which were published for consultation in June 2015, are expected to be implemented by 2018.