FDIC Advises Banks On Managing Interest Rate Risk

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On October 8, the FDIC issued Financial Institution Letter FIL-46-2013, which re-emphasizes the importance of prudent interest rate risk oversight and risk management processes to prepare for a period of rising interest rates. The FDIC states that 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. It believes that for a number of FDIC-supervised institutions, the potential exists for material securities depreciation relative to capital in a rising interest rate environment. FDIC 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.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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