Proposed IRR Regulation Could Have Unintended Consequences
C. myers agrees with the objective that most institutions should have an effective interest rate risk (IRR) management policy supported by an effective IRR program. However, we do not agree that it should be regulation.
Keep in mind as you read our comments that our business is to provide asset/liability management services to financial institutions. We have worked with hundreds of credit unions providing long-term risks to earnings and net worth simulations, static and dynamic balance sheet analyses and net economic value (NEV) simulations. A regulation of this nature would likely materially increase our business opportunities, yet we do not believe it is in the best, long-term interest of the industry.
One primary reason that we do not support the proposed regulation is that it is ambiguous. We understand this ambiguity is necessary. However, ambiguity will lead to subjectivity when implementing the regulation. Whether a credit union has a written policy with adequate limits and an effective program addressing IRR may ultimately be determined by each credit union’s most recent examiner.
Please click here to read our full response to the proposed IRR regulation.
