INTEREST RATE RISK (IRR)

Our primary objective will be to review the overall interest rate risk management process and to measure it against guidelines in the “Joint Agency Policy Statement on Interest Rate Risk” (JAPS) as provided by the FDIC on January 20, 2010 (FIL-2-2010). We will:

  • Determine appropriate policies, procedures and internal controls addressing IRR management, including limits and controls over risk taking to stay within board-approved tolerances.
  • Determine the presence of comprehensive systems and standards for measuring IRR, valuing positions, and assessing performance, including procedures for updating IRR measurement scenarios and key underlying assumptions driving the institution’s IRR analysis.
  • Review sufficiency of reporting processes to inform senior management and the board of the level of IRR exposure.
  • An important element of model validation is independent review of the logical and conceptual soundness. We will review the scope of the independent review in assessing the institution’s measurement of IRR, including the reasonableness of assumptions, the process used in determining assumptions, and the ‘backtesting’ of assumptions and results, as well as, management actions related to such. We further review for adequate follow-up procedures to monitor management’s corrective actions. While we will not test the mechanics and mathematics of the measurement model, we will review to determine that vendor provided documentation showing a credible independent third party has performed such a function.
  • On a sampling basis, we will trace reported numbers back to source documents including full source data verification for all applicable asset, liability, income and expense balances used in one of the most recent modeling reports.
  • Recalculate certain ratios and formulas addressed in the bank’s IRR policy.