Thoughts and Prayers to Everyone Affected by Loss throughout the years

Interest Rate Risk (EVE/NEV/NII IRR) validations meet the requirements of OCC Bulletin 2011-12, the Joint Policy Statement on Interest Rate Risk, the Interagency Advisory on Interest Rate Risk, NCUA Safety and Soundness, the January 2010 FDIC Advisory on IRR, the leading directives on model audits for the various FFIEC member agencies, and includes a comprehensive review of the relevant policies and procedures, category attributes and assumptions, inputs, outputs, processes, results, stress tests, back-tests, and compliance with industry best practices.

Recent events illustrate that liquidity risk management at many financial institutions is in need of improvement. Deficiencies include insufficient holdings of liquid assets, funding risky or illiquid asset portfolios with potentially volatile short-term liabilities, as well as a lack of meaningful cash flow projections and liquidity contingency plans. The Interagency Policy Statement on Funding and Liquidity Risk Management was issued May 21, 2010 as a joint effort by the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) (collectively, the agencies) and the Conference of State Bank Supervisors (CSBS) to provide consistent interagency expectations on sound practices for managing funding and liquidity risk. ​ A comprehensive Liquidity and Contingency Funding validation helps to ensure that the institution has a competent system for measuring and monitoring current and potential adverse situations in time to mitigate those risks.

They sit on your ALCO, Supervisory Committee and Board of Directors, and are responsible for all of the major decisions that affect your financial institution. Now, more than ever, Board members are responsible, accountable, and even liable, for the asset/liability management (ALM), interest rate risk (IRR) and model governance functions. Existing interagency and international guidance identifies the Board of Directors as having the ultimate responsibility for the risks undertaken by an institution – including IRR. As a result, the regulators remind Boards of Directors that they should understand and be regularly informed about the level and trend of their institutions’ IRR exposure.

The accurate capturing of the contractual and expected behavior of the current and future balance sheet positions starts with precise record level data, code that applies relevant and defensible assumptions within an industry-accepted theoretical and conceptual framework, and calculations that result in meaningful and timely output. Model certifications prove out the model math and represent only a single component of a comprehensive model verification. To fully comply with Bulletin OCC 2011-12 and the January 6, 2010 FDIC Advisory in Interest Rate Risk, Model Governance requirements, financial institutions must also have an independent review of their specific policies and procedures, data (input and imported), assumptions, and output.

Certifications have been provided by Alpha-Numeric Consulting for non-beta software for interest rate risk, liquidity, prepayments, non-maturity deposits, bond risk, and swap risk.

Industry relevancy and continuing education are required to ensure that anyone involved with the process, internally or externally, remain as current and informed as possible. Part of the process is to occassionally publish something. Throughout the last several years, Alpha-Numeric Consulting has written Auditing and Validating Asset/Liiability Management Models, The Internal Audit Desk Reference Guide 2nd Edition, numerous White Papers, and contributions to various industry magazines and newsletters.