Risk Management/Oversight

1) How should financial institutions determine which IRR vendor models are appropriate?

2) If an institution implements a new strategy and later finds that its IRR measurement model cannot capture the risk exposure, could this raise significant supervisory concerns?

Measurement and Monitoring of IRR

3) What types of IRR measurement methodologies are institutions expected to use?

4) Should institutions with non-complex balance sheets use earnings simulations to measure risk to earnings?

Stress-testing

5) Should institutions perform rate shocks greater than +/-300 basis points?

6) Should all institutions analyze risk other than repricing risk (i.e. non-parallel yield curves, basis risk, and options risk)? If so, how often should risk analysis be run?

7) Should institutions establish board-approved thresholds for monitoring each stress scenario they run?

8) When “no growth” scenarios for measuring earnings simulations are mentioned, can you clarify what “no-growth” means?

Internal controls and Validation

9) Most institutions use third party tools to measure IRR. Can independent certifications/validations commissioned by model vendors satisfy supervisory expectations for model validations?

10) Can you provide some examples of effective back-testing practices?

Assumptions

11) Can an institution use industry estimates for non-maturity-deposit (NMD) decay rates?

12) Regarding deposit decay-rate assumptions, what are some examples of a “market environment in which customer behaviors may not reflect long-term economic fundamentals?”