Interest Rate Risk Policy
Developing a Dynamic Interest Rate risk Management Program - Part 1
by Tom Farin
September-October 1993
This is the first of a two part series on moving interest rate risk management from static to dynamic.
- What we are attempting to measure
- Interest rate risk management objective
- Liability driven management approach
- Economist approach
- Farin/Parliment Retail/Wholesale approach
- Uncovered option approach
- Static vs dynamic interest rate risk management
Developing a Dynamic Interest Rate risk Management Program - Part 2
by Tom Farin
November-December1993
This is the second of a two part series on moving interest rate risk management from static to dynamic.
- Kinds of rate shocks to be used in stress testing
- Income testing
- Market value testing
- Establishing income and market value policy limits
- Documenting thought processes
Developing Interest Rate Risk Policy Limits - Part 1
By Tom Farin
November-December 1994
This is the first of a four part series on establishing interest rate risk policy limits, written by Tom Farin. It examines regulatory initiatives including FAS 115. Then it looks at the use of both income and market value measurement systems.
- What kind of risk are we attempting to measure?
- Market value risk - bank, thrift and credit union regulatory initiatives.
- How FAS 115 affects the situation.
- What kind of measurement system to use.
- Evaluating effects of rate shocks on income.
- Evaluating effects of rate shocks on market value.
Developing Effective Interest Rate Risk Policy Limits - Part 2
By Tom Farin
January-February 1995
this second of a four part series, Tom Farin looks the impact of portfolioing poorly priced ARMs in a rising rate environment. Many institutions fall outside interest rate risk policy limits. He suggests dynamic interest rate risk analysis as a took to buy time.
- Why ARMs can perform poorly in rising rate environments.
- How institutions portfolioing ARMS can be hurt more by rising rates than those portfolioing fixed-rate mortgages.
- How time can heal an interest-rate risk wound.
- Using dynamic interest rate risk analysis as a tool to buy time to solve and interest rate risk problem.
Developing Effective Interest Rate Risk Policy Limits - Part 3
Tom Farin
April-May 1995
In this third article of a four part series, Tom Farin lays out an approach to establishing income oriented policy limits. He then describes how a simulation model can be used as a dynamic measurement tool to evaluate an institution's performance relative to its limits.
- Tradeoffs between income and market value limits.
- Income limit focus - dynamic interest rate risk modeling.
- Relationship between income limits and other financial goals.
- Practical issues in implementing net income limits.
Developing Effective Interest Rate Risk Policy Limits - Part 4
By Tom Farin
July-August 1995
In part 4 of this four part series, Tom Farin discusses how to establish market value oriented policy limits. He also points out some inconsistencies between the message provided by market value measurement systems and the reality of running a real world institution.
- Regulator focus on market value - it rests on finance theory.
- Las Vegas Bank example.
- sistencies between income simulation and market value analysis results.
- Dealing with the regulator.
- Dealing with being outside your limits.
Supercharging Your ALCO Committee
By Tom Farin
November-December 1995
In this article, Tom Farin looks at the role, responsibilities and composition of the ALCO committee. He makes a number of recommendations on how the ALCO committee should be structured and used.
- Seven steps to effective interest rate risk management.
- Creating an ALCO Committee.
- ving role of the ALCO.
- Specific ALCO responsibilities.
- ALCO meeting frequency.
- ALCO committee composition.
- Establishing a reporting system.