What does this mean? FDIC, Fed issues "interest rate risk" advisory

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:

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CYA? But then there was this in FT

Top banks invited to BIS talks amid new risk fears

The Bank for International Settlements will gather top central bankers and financiers for a meeting in Basel this weekend amid rising concern about a resurgence of the "excessive risk-taking" that sparked the financial crisis.

In its invitation, the BIS cited concerns that "financial firms are returning to the aggressive behaviour that prevailed during the pre-crisis period". The BIS, known as the central banks' bank, outlined in a restricted note to participants some proposals that it believes could create a healthier financial system. Those proposals including lowering return-on-equity targets for the banks as a way to discourage such risk-taking.

RebelCapitalist.com - Financial Information for the Rest of Us.

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mother of all carry trades

and now the banks believe nothing can touch them....if they fail, they will not fail.

I'm kind of swimming around in BLS stats....there is something "wrong with this picture" going on but nailing it down (with documentation and getting the stats right) is not easy, but I suspect we're going to get some headline buster than come March or so, turns out to be "revised" and thus "fiction".

We'll see.

Either one is pretty damn bad, lovely, banks are running around with cheap money back to their usual ponzi ways to the point is causes a warning. "now boys" "you stop that now".

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Tale of two cities

The IRR warning is a subtle way of emphasizing that the Fed knows that finance often operates somewhat independently of the real economy. The Fed is trying to balance maintaining the financial system while repairing the real economy. The financiers are not cooperating but instead are return to their old tricks and taking advantage of low rates to leverage plays, figuring that if it works they make out, and if they lose, the government ponies up.

But there's not much that the Fed can do but jawbone. The financial oligarchs have been given a free pass, and they are sure to take advantage of it, no matter what the Fed, Treasury or president say.

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Subtle warning about Interest Rate Derivatives exposure

It may also be construed to be a subtle warning concerning those financial institutions' exposure to interest rate derivatives and interest rate swaps as once there is any substantial increase in interest rates, another financial explosion may occur.

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