Supervisory Insights

Winter 2014

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Supervisory Insights is published by the FDIC's Division of Risk Management Supervision to promote sound principles and practices for bank supervision.

Articles in the Winter 2014 issue include:

• Effective Governance Processes for Managing Interest Rate Risk
  The foundation of an effective interest rate risk (IRR) management process is the establishment of board-approved policies that measure, monitor, and control IRR.  As discussed in this article, a successful governance framework is grounded in an informed and involved board of directors that provides senior management with clear policy guidance, sufficient internal resources, and risk mitigation strategies to guide an institution’s IRR position well in advance of market shifts.
• Developing the Key Assumptions for Analysis of Interest Rate Risk
  Effective IRR measurement and monitoring requires accurate information; therefore, bank management should develop assumptions that are readily understood, well supported, and updated periodically.  This article describes the process for developing key assumptions necessary to analyze interest rate sensitivity in the current environment.
• Developing an In-House Independent Review of Interest Rate Risk Management Systems
  An annual independent review of its IRR measurement system is an important part of any bank’s internal control framework. The scope and formality of such a review should be appropriate for the size and complexity of the bank. This article describes common-sense approaches that non-complex institutions may use to effectively and economically perform an IRR independent review in-house.
• What to Expect During an Interest Rate Risk Review 
  This article is intended to help bankers prepare for regulatory reviews of IRR by describing what examiners focus on, supervisory expectations with respect to IRR, and communication with the FDIC during an examination.   Resources for bankers regarding IRR also are provided.

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