FDIC Re-Emphasizes Importance of Interest Rate Risk Oversight, Risk Management Processes
Oct 9 - The FDIC is re-emphasizing the importance of prudent interest rate risk oversight and risk management processes to ensure FDIC-supervised institutions are prepared for a period of rising interest rates.
- The FDIC is re-emphasizing the importance of developing a comprehensive asset-liability and interest rate risk management program.
•Interest rate risk management should be viewed as an ongoing process that requires effective measurement and monitoring, clear communication of modeling results, conformance with policy limits, and appropriate steps to mitigate risk.
- Nationally, a number of institutions report a significantly liability-sensitive balance sheet position, meaning that a marked increase in interest rates could adversely affect net interest income and, in turn, earnings performance.
- For a number of FDIC-supervised institutions, the potential exists for material securities depreciation relative to capital in a rising interest rate environment.
- Examiners will continue to consider the amount of unrealized losses in the investment portfolio and the degree to which institutions are exposed to the risk of realizing losses from depreciated securities when qualitatively assessing capital adequacy and liquidity and assigning examination ratings.
- Net unrealized losses on available-for-sale debt securities flow through to equity capital as reported under U.S. generally accepted accounting principles. Adverse trends in an institution's GAAP equity can have negative market perception and liquidity implications.
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