Interest Rate Risk Reporting

By: Bryan Fetty, Senior Consultant

There are a few common findings that we note when conducting Interest Rate Risk Reviews for clients that are easily remedied and require very little work on the part of the financial institution. One supervisory requirement is to provide a sufficiently detailed reporting process to inform senior management and the board of the level of IRR exposure. Financial institutions are providing the reports to the board, but in the world of regulators, if it isn’t documented in the minutes, you didn’t do it.
Financial institutions should ensure that their committee and board minutes are detailed enough to show the level of discussion about their reports that takes place at the meeting. There doesn’t need to be extensive narrative on the issues, but the minutes should reflect:

      Whether or not the board reviewed the quarterly IRR reports
      Whether or not the monitored risk measures were in compliance with the policy limits
      If any measurements fell outside of the policy limits or the reports show presence of warning indicators, include a short explanation and management’s recommendations/action items (if applicable)
      If there were any material changes in the risk measurement results compared with the previous period, include a short explanation (for example, changes made to the assumptions used in the model, material changes in the mix of assets or liabilities, any unique circumstances)
      On an annual basis, note when the board reviewed the policy, any independent review reports, the key model assumptions, and any stress or assumption tests
      Whether or not any other ALCO-related topics were discussed during the meeting.

For more information on how Young &Associates, Inc. can assist your financial institution with the annual IRR review and model back-testing process, please email Bryan Fetty at bfetty@younginc.com or give him a call at 330.422.3452.