Interest Rate Risk Management: FAQs on 2010 Interagency Advisory on Interest Rate Risk Management

The financial regulators¹ have received requests to clarify points in the 2010 Interagency Advisory on Interest Rate Risk Management (the advisory). In response, this "Frequently Asked Questions" (FAQs) document answers commonly asked questions. The document addresses areas critical to effective and sound interest rate risk (IRR) management, including appropriate measurement and reporting, robust and meaningful stress testing; assumption development reflecting the institution’s experience; and comprehensive model validation.

The OCC expects all national banks and federal savings associations to manage their IRR exposures using processes and systems commensurate with their earnings and capital levels; complexity; business model; risk profile; and scope of operations.

As detailed in Federal Register 76 FR 39981 and Office of Thrift Supervision (OTS) Chief Executive Officer Memo #391, dated July 7, 2011,² the federal banking agencies will discontinue after the December 31, 2011-reporting period, the Consolidated Maturity/Rate Schedule (Schedule CMR) and OTS Net Portfolio Value (NPV) IRR Model.

By March 31, 2012, savings associations will be expected to have an independent IRR measurement process in place that measures both earnings and capital at risk, as described in the 2010 interagency advisory and the 1996 IRR policy statement.

As a result, effective March 31, 2012, the following OTS guidance is rescinded:

• Thrift Bulletin 13a, Management of IRR, Investment Securities, and Derivatives Activities
• Thrift Bulletin 13a-2, Structured Advances
• Chief Executive Officers Memo #195, Risk Management Practices in the Current Interest Rate Risk Environment
• Chief Executive Officers Memo #248, Enhanced NPV Model
• Chief Executive Officers Memo #271, Interest Rate Risk-Interim Changes
• Chief Executive Officers Memo #334, Interagency Advisory on IRR Management
• Examination Handbook, Section 650, Interest Rate Risk Management (and related programs and appendixes)

Other OTS guidance documents addressing regulatory requirements that differ from requirements for national banks are being evaluated by the OCC and may be rescinded in the future.

For more detailed IRR guidance applicable to both national banks and federal savings associations, please refer to the following bulletins and other background information:

• OCC 2010-1, Interagency Advisory on Interest Rate Risk Management
• OCC 2011-12, Supervisory Guidance on Model Risk Management
• OCC 2004-29, Embedded Options and Long-Term Interest Rate Risk
• OCC 1999-02, Risk Management of Financial Derivatives and Bank Trading Activities, Supplemental Guidance
• Comptroller’s Handbook booklet on Interest Rate Risk
• Comptroller’s Handbook booklet on Risk Management of Financial Derivatives

For further information, call Kerri R. Corn, Director for Market Risk, at (202) 649-6360.

John C. Lyons Jr.
Senior Deputy Comptroller for Bank Supervision Policy
and Chief National Bank Examiner

Related Link

• FAQs on 2010 Advisory on Interest Rate Risk Management (PDF)