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FDIC Publication Focuses on Need for Effective Interest-Rate Risk Management

 

Dec 20 - The recent sustained low interest-rate environment has led many banks to change their asset mixes and funding profiles. "Industry Trends Highlight Importance of Effective Interest-Rate Risk Management," which appears in the FDIC's Winter 2013 issue of Supervisory Insights, looks at how these changes have resulted in increased interest-rate risk exposure.

"Policies and procedures that effectively quantify and assess IRR exposure remain a critical component of a bank's overall risk management framework," said Doreen R. Eberley, director, division of risk management supervision. "We encourage banks that have experienced significant changes in their asset or funding mix during the past several years to now consider developing risk mitigation strategies, such as those described in this article, to reduce IRR exposure. These strategies are more cost-effective to implement before rates move."

"Lending Trends: Results from the FDIC's Credit and Consumer Products/Services Survey" shares recent survey results relating to loan growth, credit underwriting, factors influencing banks' ability and willingness to lend, and use of loan workouts.

The issuance of the new regulatory capital rules, known as Basel III, will require adjustments to a bank's regulatory capital due to investments in the capital of unconsolidated financial institutions. "The New Basel III Definition of Capital: Understanding the Deductions for Investments in Unconsolidated Financial Institutions" describes these adjustments and provides examples that illustrate how to calculate the deduction.

Supervisory Insights provides a forum for discussing how bank regulation and policy are put into practice in the field, sharing best practices, and communicating about the emerging issues that bank supervisors face. The journal is available on the FDIC's website at www.fdic.gov/regulations/examinations/supervisory/insights/index.html. Suggestions for future topics and requests for permission to reprint articles should be emailed to supervisoryjournal(at)fdic.gov. Requests for print copies should be e-mailed to publicinfo(at)fdic.gov.



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