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OCC Has Interest Rate Risk Under Control

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In his Oct. 31 article, "Has OCC's Ability to Monitor Interest Rate Risk Been Compromised?," Clifford V. Rossi suggests the Office of the Comptroller of the Currency and the thrift industry are "flying blind" because of abandoning a model used by the former Office of Thrift Supervision to evaluate interest rate risks at federal savings associations.

Mr. Rossi's assertions, however, are not supported by the facts and do not reflect the robust risk monitoring capabilities that are in place.

When the OCC took over responsibility for supervising federal savings associations, we evaluated the model that was being used and determined that the cost to keep it viable was not justified when superior interest rate risk models are available from dozens of vendors. Furthermore, half of thrifts that make up the bulk of all thrift assets already relied on other commercially-available models. 

The OCC expended significant effort to make the industry aware of this change and allowed 15 months for thrifts that were not already using a commercial model for monitoring interest rate risk to purchase and implement one to meet the OCC interest rate risk management guidelines. 

The OCC has a rigorous quarterly risk assessment process that evaluates interest rate risk as well as other key risks such as credit, operational, compliance and legal risks.  As part of that assessment, we evaluate MIS capabilities, including the use of models for monitoring key risks, including interest rate risk. Deficiencies are reported to senior management of each institution and, when material, to the board of directors. Each quarter, the OCC also identifies outlier institutions across an array of risk factors, including interest rate risk. These reports highlight the institutions that warrant heightened supervisory attention because of their interest rate risk profile. 

Over the past two-and-a-half years, the OCC has communicated our concerns about interest rate risk through supervisory memos, messages to examiners, interagency guidance and, more recently, our Semiannual Perspective on Risk.

The tools in place at the OCC and those available to the industry provide a range of resources to monitor, understand and act on risk and prevent us from "flying blind."

Martin Pfinsgraff is the deputy comptroller for credit and market risk.

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Comments (2)
Perhaps the OCC has IRR under control for the financial institution profile that they have experience with: commercial banks, ag banks, money center banks, trust banks, etc. I wonder if they have any understanding of the IRR of the institutions they inherited from the Office of Thrift Supervision. The author sounds confident that they do, but it appears the push is on to convert thrifts into commercial banks.
Posted by Blatz | Sunday, November 04 2012 at 9:55AM ET
I don't understand why American Banker publishes a "puff piece" as an article. Call it what it is, more jabberwokky without recommendation or substance to assist in the operation. It comes as close as anyone could imagine to defining the state of examination and regulation: do this, not that, there are sources, etc.
Posted by Weary of Washington | Monday, November 05 2012 at 4:40PM ET
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