Isn't this strange? The Federal Reserve issues an interest rate risk advisory.
The Federal Deposit Insurance Corporation (FDIC), in coordination with the other member agencies of the Federal Financial Institutions Examination Council (FFIEC), released an advisory today reminding institutions of supervisory expectations for sound practices to manage interest rate risk (IRR). This advisory, adopted by each of the financial regulators, 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 elements of existing guidance and describes some IRR management techniques used by effective risk managers.
The financial regulators recognize that some IRR is inherent in the business of banking. At the same time, institutions are expected to have sound risk-management practices to measure, monitor, and control IRR exposures. The financial regulators expect each depository institution to manage its IRR exposures using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations.
The financial regulators remind depository institutions that an effective IRR management system does not involve only the identification and measurement of IRR, but also addresses appropriate actions to control this risk. If an institution determines that its core earnings and capital are insufficient to support its level of IRR, it should take steps to mitigate its exposure, increase its capital, or both.
Supposedly the Federal Reserve is not planning on raising rates anytime soon.
Reported by ABC News, the last time such a warning was issued was 1996.
So, does this imply banks are taking extreme risks due to cheap money or is it to prepare banks for increasing rates?
Or is this being issued because we're going to get a very funky metric tomorrow on employment? If this is true and we get some BLS blow out, all Economic Populists, let's dig in deep to research where those numbers could come from to make sure it's real jobs, real people.
In case you're wondering if the 1996 advisory led to an actual target rate change: