Interest Rate Risk

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
• Advisory on 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.

• FDIC Technical Assistance Video for directors provides an overview of the interest rate risk management process and the board's responsibilities within that process
• The following FDIC Technical Assistance Videos are designed for community bank management and individuals who are involved in the interest rate risk management function:
  • Overview & Recent Industry Trends video and presentation materials provide a general overview of the interest rate risk management process and recent industry trends
  • Types of Interest Rate Risk video and presentation materials discuss the types of interest rate risk financial institutions are exposed to, including repricing risk, yield curve risk, option risk, and basis risk
  • Measurement Systems video and presentation materials discuss the various types of systems or models used to measure interest rate risk exposure, including gap, income simulation, extended income simulation, and economic value of equity models
  • Rate Changes and Prepayment Assumptions video and presentation materials discuss management responsibilities regarding interest rate risk model overall assumptions and specifically rate change and prepayment assumptions
  • Deposit Assumptions video and presentation materials discuss deposit customer behavior and non-maturity deposit assumptions
  • Risk Limits and Mitigation video and presentation materials discuss the importance of risk limits and mitigation strategies and how these tools can be used to manage the bank’s interest rate risk position
  • Internal Control and Review video and presentation materials discuss management’s responsibilities in maintaining an adequate system of internal controls, including an independent review and validation function
  • Review and Additional Resources video and presentation materials provide a general overview of the preceding videos, the interest rate risk management process, and outstanding regulatory guidance, and resources