As of March 31, 2012, this guidance applies to federal savings associations in addition to national banks.*

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of Thrift Supervision, and the Federal Financial Institutions Examination Council’s State Liaison Committee (collectively, the regulators) are issuing this advisory to remind institutions of supervisory expectations regarding sound practices for managing interest rate risk (IRR). In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates.

This advisory reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the IRR exposures of depository institutions. It also clarifies various elements of existing guidance and describes selected IRR management techniques used by effective risk managers.

The OCC recognizes that some degree of IRR is inherent in the business of banking. At the same time, however, institutions are expected to have sound risk management practices in place to manage IRR exposures. The regulators expect all institutions 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. Effective IRR management processes are particularly important for those institutions experiencing downward pressure on earnings and capital due to lower credit quality and market illiquidity.  For more detailed guidance, please refer to the 1997 Comptroller’s Handbook for Interest Rate Risk; 1997 Comptroller’s Handbook for Risk Management of Financial Derivatives; OCC Bulletin 2004-29, “Embedded Options and Long-Term Interest Rate Risk;” and OCC Bulletin 2000-16, “Model Validation.”

For further information, contact Kerri R. Corn, Director for Market Risk, at (202) 874-4364 or National Bank Examiner Marshall Osborne at (202) 874-5231.

Timothy W. Long
Senior Deputy Comptroller for Bank Supervision Policy
and Chief National Bank Examiner

Related Links

• Interagency Advisory on Interest Rate Risk Management

*References in this guidance to national banks or banks generally should be read to include federal savings associations (FSA). If statutes, regulations, or other OCC guidance is referenced herein, please consult those sources to determine applicability to FSAs. If you have questions about how to apply this guidance, please contact your OCC supervisory office.