A Framework for Balance Sheet Risk Management

November, 2014

Interest rate risk management is top of mind for senior managers at many financial institutions right now. With so much uncertainty around the timing and magnitude of any changes to the federal funds target rate, it’s understandable that everyone from board members to investors to regulators wants to know exactly how the institution is positioned, and whether it will benefit or suffer when rates begin to change. While FIs are generally willing and able to tackle their interest rate risk, too often the focus is on a specific transaction, rather than an assessment of whether and how the transaction fits into the overall interest rate risk mitigation strategy.

This bulletin lays out a simple, yet powerful balance sheet risk management (BSRM) framework that can be used to evaluate an FI’s exposure to interest rates. It also provides the proper context and next steps that enable an FI to achieve its desired interest rate risk management objectives.

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