FFIEC Releases FAQs on Interest Rate Risk Management

The Federal Financial Institutions Examination Council (FFIEC) has released answers to Frequently Asked Questions (FAQs) about the January 2010 advisory on Interest Rate Risk Management. These FAQs are being adopted by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the National Credit Union Administration (NCUA), and the State Liaison Committee (collectively, the “financial regulators”). The FAQs respond to common questions on several areas that are critical to sound interest rate risk management, including appropriate measurement and reporting, robust and meaningful stress testing, assumption development reflecting the institution’s experience, and comprehensive model validation. The financial regulators expect that all supervised institutions will manage interest rate risk exposures using processes and systems commensurate with their complexity, business models, risk profiles, scope of operations, and earnings and capital levels. Each financial institution’s management team is responsible for ensuring that the institution’s interest rate risk management processes and measurement systems are capable of capturing, reporting, and controlling risks being taken. The FAQs provide examples of risk management expectations for financial institutions of various interest rate risk profiles, including how to adjust processes as risks change. The FAQs supplement the advisory and should be reviewed in conjunction with that document and other referenced guidance.