Interest Rate Risk
While many financial institutions have outsourced their interest rate risk reporting to a third-party, the financial institution still has responsibility for reviewing and testing the data prepared by the third-party. At a minimum, small financial institutions need to have the following items performed by an independent party:
•Review of the financial institution’s relevant policies related to Interest Rate Risk (IRR), ensuring all required items are addressed and the institution is operating within policy guidelines.
•Testing of the data utilized and imported into the IRR measurement tool; verifying the data is accurate and complete.
•Review of assumptions utilized, including prepayment assumptions, non-maturity deposit assumptions, driver rates for reasonableness and that the assumptions reflect the financial institution’s behavior.
•Obtain and review available model documentation provided by third-party vendor to ensure the model is tested by an independent third party.
•Review reports utilized to manage Interest Rate Risk and reported to the Board to ensure earnings analysis is performed over an acceptable time horizon, a no-growth or static balance sheet analysis is included, and appropriate scenarios are run and evaluated (+/- 100 to 400 shocks, non-parallel shocks etc.).
•Perform back test to compare actual or historical results to the results assumed or predicated by the Interest Rate Risk software.
If you are in need of an Interest Rate Risk review, our ABS expert is a phone call away. Please contact us at 913-599-7471 or via email at firstname.lastname@example.org.