The State of Interest Rate Risk Management
REPORT PREVIOUSLY PUBLISHED BY OLIVER WYMAN
The interest rate environment has been nothing but extraordinary during and after the crisis. Many countries are still at historically low levels of interest rates with a steep yield curve as a result of the crisis and unorthodox monetary policy responses. In the face of many levels of uncertainty such as credit growth, the financial markets, the banking environment, and the continuation (and eventual reversal) of unorthodox monetary policies, interest rate risk (IRR) management presents challenges for financial institutions of all sizes. In particular, institutions face the challenge of generating higher net interest income (NII) while maintaining IRR levels within acceptable limits.
Oliver Wyman recently performed an industry survey on interest rate risk management across a group of eighteen North American banks. The survey set out to examine how banks are responding to uncertainty through their IRR management and measurement practices. In this report, The State of Interest Rate Risk Management, Oliver Wyman presents salient conclusions from its observations and experiences, points out avenues that will shape the evolution of industry practices, and provides a summary checklist for financial institutions. The authors also discuss implications for balance sheet management in an era characterized by a myriad of market and regulatory constraints pressuring banks.
Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].
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Table of Contents
IRR Management Context and Survey Overview
Moving Towards a More Balanced
Advances in Measurement and Methodologies
Deposit Characterization: Guarding Against a Fundamental Shift
Implications for Balance Sheet Optimization