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Interest Rate Risk: Managing for Today and Planning Ahead for Future Challenges

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Interest Rate Risk (IRR) Management

The federal funds rates (rates) have been extremely low for an unprecedented period of time. With recent rate increases, primarily resulting in increased yields on interest earning assets and only limited increases in deposit rates, IRR management practices and procedures have been on autopilot at many financial institutions for some time now. Some chief financial officers have described the environment, in the past few years, as “boring.” However, if there is one thing about IRR management that has remained consistent over time, it is that a stable environment can quickly become unstable and “not boring.”

The general expectation, at this time, is that rates will continue to rise. With this expectation and a recent change in the chairperson of the Board of Governors of the Federal Reserve System, this is likely a good time to review your IRR management practices to ensure they are suitable for a potential prolonged period of rising rates.

Graph of Net Interest Income, NIM for US Banks & Thrifts



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