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The final version of this document was published in July 2004. http://www.bis.org/publ/bcbs108.htm
Basel Committee
on Banking Supervision
Consultative Document
Principles for the
Management and
Supervision of Interest
Rate Risk
Issued for comment by 31 October 2003
September 2003
The final version of this document was published in July 2004. http://www.bis.org/publ/bcbs108.htm
The final version of this document was published in July 2004. http://www.bis.org/publ/bcbs108.htm
Table of Contents
Summary ............................................................................................................................... 1
Board and senior management oversight of interest rate risk................................................. 3
Adequate risk management policies and procedures ............................................................. 3
Risk measurement, monitoring and control functions ............................................................. 4
Internal controls ..................................................................................................................... 4
Information for supervisory authorities.................................................................................... 4
Capital adequacy ................................................................................................................... 4
Disclosure of interest rate risk ................................................................................................ 4
Supervisory treatment of interest rate risk in the banking book............................................... 5
I. Sources and effects of interest rate risk ........................................................................ 6
A. Sources of interest rate risk ................................................................................. 6
B. Effects of interest rate risk.................................................................................... 7
II. Sound interest rate risk management practices............................................................. 9
III. Board and senior management oversight of interest rate risk...................................... 10
A. Board of directors............................................................................................... 10
B. Senior management........................................................................................... 11
C. Lines of responsibility and authority for managing interest rate risk.................... 11
IV. Adequate risk management policies and procedures .................................................. 13
V. Risk measurement, monitoring and control functions .................................................. 15
A. Interest rate risk measurement........................................................................... 15
B. Limits ................................................................................................................. 17
C. Stress testing ..................................................................................................... 18
D. Interest rate risk monitoring and reporting .......................................................... 19
VI. Internal controls .......................................................................................................... 20
VII. Information for supervisory authorities ........................................................................ 22
VIII. Capital adequacy ........................................................................................................ 23
IX. Disclosure of interest rate risk ..................................................................................... 24
X. Supervisory treatment of interest rate risk in the banking book ................................... 25
Annex 1: Interest rate risk measurement techniques............................................................ 28
Annex 2: Monitoring of interest rate risk by supervisory authorities ...................................... 33
Annex 3: The standardised interest rate shock..................................................................... 36
Annex 4: An example of a standardised framework.............................................................. 38
The final version of this document was published in July 2004. http://www.bis.org/publ/bcbs108.htm
The final version of this document was published in July 2004. http://www.bis.org/publ/bcbs108.htm
Principles for the
Management and Supervision of Interest Rate Risk
The consultative paper ‘Principles for the Management and Supervision of Interest
Rate Risk’ was originally published as a supporting document to the Second
Consultative Paper on the New Basel Capital Accord in January 2001. The Basel
Committee on Banking Supervision (the Committee) is grateful for the many insightful
comments received from institutions, industry associations, supervisory authorities,
and others which have contributed to the revised version of this paper. Due to the
important issues addressed in the paper, the Committee has decided to release a
revised version for a second, short period of consultation before finalisation. The
Committee would therefore welcome comments on the revised principles outlined in
this paper. These comments should be submitted to relevant national supervisory
authorities and central banks and may also be sent to the Secretariat of the Basel
Committee on Banking Supervision at the Bank for International Settlements, CH-4002
Basel, Switzerland by 31 October 2003. Comments may be submitted via e-mail:
[email protected] or by fax: + 41 61 280 9100. Comments on this paper will not be
posted on the BIS website.
Summary
1. As part of its on-going efforts to address international bank supervisory issues, the
Basel Committee on Banking Supervision1 issued a paper on principles for the management
of interest rate risk in September 1997. In developing these principles, the Committee drew
on supervisory guidance in member countries, on the comments of the banking industry on
the Committee's earlier paper, issued for consultation in April 1993,2 and on comments
received on the draft paper issued for consultation. In addition, the paper incorporated many
of the principles contained in the guidance issued by the Committee for derivatives activities,3
which are reflected in the qualitative parameters for model-users in the capital standards for
market risk.4 This revised version of the 1997 paper is being issued to support the Pillar 2
approach to interest rate risk in the banking book in The New Basel Capital Accord.5 The
revision is reflected especially in this Summary, in Principles 12 to 15, and in Annexes 3
and 4.
2. Principles 1 to 13 in this paper are intended to be of general application for the
management of interest rate risk, independent of whether the positions are part of the trading
1
The Basel Committee on Banking Supervision is a Committee of banking supervisory authorities which was
established by the central-bank Governors of the Group of Ten countries in 1975. It consists of senior
representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany,
Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United States.
It usually meets at the Bank for International Settlements in Basel, where its permanent Secretariat is located.
2
Measurement of Banks' Exposure to Interest Rate Risk, Consultative proposal by the Committee, April 1993.
3
Risk Management Guidelines for Derivatives, July 1994.
4
Amendment to the Capital Accord to Incorporate Market Risk, January 1996.
5
See “Part 3: The Second Pillar - Supervisory Review Process”, of The New Basel Capital Accord, April 2003.
1
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book or reflect banks' non-trading activities. They refer to an interest rate risk management
process, which includes the development of a business strategy, the assumption of assets
and liabilities in banking and trading activities, as well as a system of internal controls. In
particular, they address the need for effective interest rate risk measurement, monitoring and
control functions within the interest rate risk management process. Principles 14 and 15, on
the other hand, specifically address the supervisory treatment of interest rate risk in the
banking book.
3. The principles are intended to be of general application, based as they are on
practices currently used by many international banks, even though their specific application
will depend to some extent on the complexity and range of activities undertaken by individual
banks. Under the New Basel Capital Accord, they form minimum standards expected of
internationally active banks.
4. The exact approach chosen by individual supervisors to monitor and respond to
interest rate risk will depend upon a host of factors, including their on-site and off-site
supervisory techniques and the degree to which external auditors are also used in the
supervisory function. All members of the Committee agree that the principles set out
here should be used in evaluating the adequacy and effectiveness of a bank's interest
rate risk management, in assessing the extent of interest rate risk run by a bank in its
banking book, and in developing the supervisory response to that risk.
5. In this, as in many other areas, sound controls are of crucial importance. It is
essential that banks have a comprehensive risk management process in place that
effectively identifies, measures, monitors and controls interest rate risk exposures, and that is
subject to appropriate board and senior management oversight. The paper describes each of
these elements, drawing upon experience in member countries and principles established in
earlier publications by the Committee.
6. The paper also outlines a number of principles for use by supervisory authorities
when evaluating banks' interest rate risk management. This paper strongly endorses the
principle that banks’ internal measurement systems should, wherever possible, form the
foundation of the supervisory authorities’ measurement of and response to the level of
interest rate risk. It provides guidance to help supervisors assess whether internal
measurement systems are adequate for this purpose, and also provides an example of a
possible framework for obtaining information on interest rate risk in the banking book in the
event that the internal measurement system is not judged to be adequate.
7. Even though the Committee is not currently proposing mandatory capital charges
specifically for interest rate risk in the banking book, all banks must have enough capital to
support the risks they incur, including those arising from interest rate risk. If supervisors
determine that a bank has insufficient capital to support its interest rate risk, they must
require either a reduction in the risk or an increase in the capital held to support it, or a
combination of both. Supervisors should be particularly attentive to the capital sufficiency of
“outlier banks” – those whose interest rate risk in the banking book leads to an economic
value decline of more than 20% of the sum of Tier 1 and Tier 2 capital following a
standardised interest rate shock or its equivalent. Individual supervisors may also decide to
apply additional capital charges to their banking system in general.
8. The Committee will keep the need for more standardised measures under review
and may, at a later stage, revisit its approach in this area. In that context, the Committee is
aware that industry techniques for measuring and managing interest rate risk are continuing
to evolve, particularly for products with uncertain cash flows or repricing dates, such as many
mortgage-related products and retail deposits.
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9. The Committee is also distributing this paper to supervisory authorities worldwide in
the belief that the principles presented will provide a useful framework for prudent
supervision of interest rate risk. More generally, the Committee wishes to emphasise that
sound risk management practices are essential to the prudent operation of banks and to
promoting stability in the financial system as a whole.
10. The Committee stipulates in Sections III to X of the paper the following fifteen
principles. These will be used by supervisory authorities in evaluating the adequacy and
effectiveness of a bank's interest rate risk management, in assessing the extent of interest
rate risk run by a bank in its banking book, and in developing the supervisory response to
that risk:
Board and senior management oversight of interest rate risk
Principle 1: In order to carry out its responsibilities, the board of directors in a bank
should approve strategies and policies with respect to interest rate risk management
and ensure that senior management takes the steps necessary to monitor and control
these risks. The board of directors should be informed regularly of the interest rate
risk exposure of the bank in order to assess the monitoring and controlling of such
risk.
Principle 2: Senior management must ensure that the structure of the bank's business
and the level of interest rate risk it assumes are effectively managed, that appropriate
policies and procedures are established to control and limit these risks, and that
resources are available for evaluating and controlling interest rate risk.
Principle 3: Banks should clearly define the individuals and/or committees
responsible for managing interest rate risk and should ensure that there is adequate
separation of duties in key elements of the risk management process to avoid
potential conflicts of interest. Banks should have risk measurement, monitoring and
control functions with clearly defined duties that are sufficiently independent from
position-taking functions of the bank and which report risk exposures directly to
senior management and the board of directors. Larger or more complex banks should
have a designated independent unit responsible for the design and administration of
the bank's interest rate risk measurement, monitoring and control functions.
Adequate risk management policies and procedures
Principle 4: It is essential that banks' interest rate risk policies and procedures are
clearly defined and consistent with the nature and complexity of their activities. These
policies should be applied on a consolidated basis and, as appropriate, at the level of
individual affiliates, especially when recognising legal distinctions and possible
obstacles to cash movements among affiliates.
Principle 5: It is important that banks identify the risks inherent in new products and
activities and ensure these are subject to adequate procedures and controls before
being introduced or undertaken. Major hedging or risk management initiatives should
be approved in advance by the board or its appropriate delegated committee.
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Risk measurement, monitoring and control functions
Principle 6: It is essential that banks have interest rate risk measurement systems that
capture all material sources of interest rate risk and that assess the effect of interest
rate changes in ways that are consistent with the scope of their activities. The
assumptions underlying the system should be clearly understood by risk managers
and bank management.
Principle 7: Banks must establish and enforce operating limits and other practices
that maintain exposures within levels consistent with their internal policies.
Principle 8: Banks should measure their vulnerability to loss under stressful market
conditions - including the breakdown of key assumptions - and consider those results
when establishing and reviewing their policies and limits for interest rate risk.
Principle 9: Banks must have adequate information systems for measuring,
monitoring, controlling and reporting interest rate exposures. Reports must be
provided on a timely basis to the bank's board of directors, senior management and,
where appropriate, individual business line managers.
Internal controls
Principle 10: Banks must have an adequate system of internal controls over their
interest rate risk management process. A fundamental component of the internal
control system involves regular independent reviews and evaluations of the
effectiveness of the system and, where necessary, ensuring that appropriate revisions
or enhancements to internal controls are made. The results of such reviews should be
available to the relevant supervisory authorities.
Information for supervisory authorities
Principle 11: Supervisory authorities should obtain from banks sufficient and timely
information with which to evaluate their level of interest rate risk. This information
should take appropriate account of the range of maturities and currencies in each
bank's portfolio, including off-balance sheet items, as well as other relevant factors,
such as the distinction between trading and non-trading activities.
Capital adequacy
Principle 12: Banks must hold capital commensurate with the level of interest rate risk
they undertake.
Disclosure of interest rate risk
Principle 13: Banks should release to the public information on the level of interest
rate risk and their policies for its management.
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Supervisory treatment of interest rate risk in the banking book
Principle 14: Supervisory authorities must assess whether the internal measurement
systems of banks adequately capture the interest rate risk in their banking book. If a
bank’s internal measurement system does not adequately capture the interest rate
risk, banks must bring the system to the required standard. To facilitate supervisors’
monitoring of interest rate risk exposures across institutions, banks must provide the
results of their internal measurement systems, expressed in terms of the threat to
economic value, using a standardised interest rate shock.
Principle 15: If supervisors determine that a bank is not holding capital commensurate
with the level of interest rate risk in the banking book, they should consider remedial
action, requiring the bank either to reduce its risk, to hold a specific additional amount
of capital, or a combination of both.
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I. Sources and effects of interest rate risk
11. Interest rate risk is the exposure of a bank's financial condition to adverse
movements in interest rates. Accepting this risk is a normal part of banking and can be an
important source of profitability and shareholder value. However, excessive interest rate risk
can pose a significant threat to a bank's earnings and capital base. Changes in interest rates
affect a bank's earnings by changing its net interest income and the level of other interest-
sensitive income and operating expenses. Changes in interest rates also affect the
underlying value of the bank's assets, liabilities and off-balance sheet instruments because
the present value of future cash flows (and in some cases, the cash flows themselves)
change when interest rates change. Accordingly, an effective risk management process that
maintains interest rate risk within prudent levels is essential to the safety and soundness of
banks.
12. Before setting out some principles for interest rate risk management, a brief
introduction to the sources and effects of interest rate risk might be helpful. Thus, the
following sections describe the primary forms of interest rate risk to which banks are typically
exposed. These include repricing risk, yield curve risk, basis risk and optionality, each of
which is discussed in greater detail below. These sections also describe the two most
common perspectives for assessing a bank's interest rate risk exposure: the earnings
perspective and the economic value perspective. As the names suggest, the earnings
perspective focuses on the impact of interest rate changes on a bank's near-term earnings,
while the economic value perspective focuses on the value of a bank's net cash flows.
A. Sources of interest rate risk
13. Repricing risk: As financial intermediaries, banks encounter interest rate risk in
several ways. The primary and most often discussed form of interest rate risk arises from
timing differences in the maturity (for fixed rate) and repricing (for floating rate) of bank
assets, liabilities and off-balance-sheet (OBS) positions. While such repricing mismatches
are fundamental to the business of banking, they can expose a bank's income and
underlying economic value to unanticipated fluctuations as interest rates vary. For instance,
a bank that funded a long-term fixed rate loan with a short-term deposit could face a decline
in both the future income arising from the position and its underlying value if interest rates
increase. These declines arise because the cash flows on the loan are fixed over its lifetime,
while the interest paid on the funding is variable, and increases after the short-term deposit
matures.
14. Yield curve risk: Repricing mismatches can also expose a bank to changes in the
slope and shape of the yield curve. Yield curve risk arises when unanticipated shifts of the
yield curve have adverse effects on a bank's income or underlying economic value. For
instance, the underlying economic value of a long position in 10-year government bonds
hedged by a short position in 5-year government notes could decline sharply if the yield
curve steepens, even if the position is hedged against parallel movements in the yield curve.
15. Basis risk: Another important source of interest rate risk (commonly referred to as
basis risk) arises from imperfect correlation in the adjustment of the rates earned and paid on
different instruments with otherwise similar repricing characteristics. When interest rates
change, these differences can give rise to unexpected changes in the cash flows and
earnings spread between assets, liabilities and OBS instruments of similar maturities or
repricing frequencies. For example, a strategy of funding a one year loan that reprices
monthly based on the one month US Treasury Bill rate, with a one-year deposit that reprices
monthly based on one month Libor, exposes the institution to the risk that the spread
between the two index rates may change unexpectedly.
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16. Optionality: An additional and increasingly important source of interest rate risk
arises from the options embedded in many bank assets, liabilities and OBS portfolios.
Formally, an option provides the holder the right, but not the obligation, to buy, sell, or in
some manner alter the cash flow of an instrument or financial contract. Options may be stand
alone instruments such as exchange-traded options and over-the-counter (OTC) contracts,
or they may be embedded within otherwise standard instruments. While banks use
exchange-traded and OTC-options in both trading and non-trading accounts, instruments
with embedded options are generally most important in non-trading activities. They include
various types of bonds and notes with call or put provisions, loans which give borrowers the
right to prepay balances, and various types of non-maturity deposit instruments which give
depositors the right to withdraw funds at any time, often without any penalties. If not
adequately managed, the asymmetrical payoff characteristics of instruments with optionality
features can pose significant risk particularly to those who sell them, since the options held,
both explicit and embedded, are generally exercised to the advantage of the holder and the
disadvantage of the seller. Moreover, an increasing array of options can involve significant
leverage which can magnify the influences (both negative and positive) of option positions on
the financial condition of the firm.
B. Effects of interest rate risk
17. As the discussion above suggests, changes in interest rates can have adverse
effects both on a bank's earnings and its economic value. This has given rise to two
separate, but complementary, perspectives for assessing a bank's interest rate risk
exposure.
18. Earnings perspective: In the earnings perspective, the focus of analysis is the
impact of changes in interest rates on accrual or reported earnings. This is the traditional
approach to interest rate risk assessment taken by many banks. Variation in earnings is an
important focal point for interest rate risk analysis because reduced earnings or outright
losses can threaten the financial stability of an institution by undermining its capital adequacy
and by reducing market confidence.
19. In this regard, the component of earnings that has traditionally received the most
attention is net interest income (i.e. the difference between total interest income and total
interest expense). This focus reflects both the importance of net interest income in banks'
overall earnings and its direct and easily understood link to changes in interest rates.
However, as banks have expanded increasingly into activities that generate fee-based and
other non-interest income, a broader focus on overall net income - incorporating both interest
and non-interest income and expenses - has become more common. The non-interest
income arising from many activities, such as loan servicing and various asset securitisation
programs, can be highly sensitive to market interest rates. For example, some banks provide
the servicing and loan administration function for mortgage loan pools in return for a fee
based on the volume of assets it administers. When interest rates fall, the servicing bank
may experience a decline in its fee income as the underlying mortgages prepay. In addition,
even traditional sources of non-interest income such as transaction processing fees are
becoming more interest rate sensitive. This increased sensitivity has led both bank
management and supervisors to take a broader view of the potential effects of changes in
market interest rates on bank earnings and to factor these broader effects into their
estimated earnings under different interest rate environments.
20. Economic value perspective: Variation in market interest rates can also affect the
economic value of a bank's assets, liabilities and OBS positions. Thus, the sensitivity of a
bank's economic value to fluctuations in interest rates is a particularly important
consideration of shareholders, management and supervisors alike. The economic value of an
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instrument represents an assessment of the present value of its expected net cash flows,
discounted to reflect market rates. By extension, the economic value of a bank can be
viewed as the present value of bank's expected net cash flows, defined as the expected cash
flows on assets minus the expected cash flows on liabilities plus the expected net cash flows
on OBS positions. In this sense, the economic value perspective reflects one view of the
sensitivity of the net worth of the bank to fluctuations in interest rates.
21. Since the economic value perspective considers the potential impact of interest rate
changes on the present value of all future cash flows, it provides a more comprehensive view
of the potential long-term effects of changes in interest rates than is offered by the earnings
perspective. This comprehensive view is important since changes in near-term earnings - the
typical focus of the earnings perspective - may not provide an accurate indication of the
impact of interest rate movements on the bank's overall positions.
22. Embedded losses: The earnings and economic value perspectives discussed thus
far focus on how future changes in interest rates may affect a bank's financial performance.
When evaluating the level of interest rate risk it is willing and able to assume, a bank should
also consider the impact that past interest rates may have on future performance. In
particular, instruments that are not marked to market may already contain embedded gains
or losses due to past rate movements. These gains or losses may be reflected over time in
the bank's earnings. For example, a long term fixed rate loan entered into when interest rates
were low and refunded more recently with liabilities bearing a higher rate of interest will, over
its remaining life, represent a drain on the bank's resources.
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II. Sound interest rate risk management practices
23. Sound interest rate risk management involves the application of four basic elements
in the management of assets, liabilities and off-balance-sheet instruments:
· Appropriate board and senior management oversight;
· Adequate risk management policies and procedures;
· Appropriate risk measurement, monitoring and control functions; and
· Comprehensive internal controls and independent audits.
24. The specific manner in which a bank applies these elements in managing its interest
rate risk will depend upon the complexity and nature of its holdings and activities as well as
on the level of interest rate risk exposure. What constitutes adequate interest rate risk
management practices can therefore vary considerably. For example, less complex banks
whose senior managers are actively involved in the details of day-to-day operations may be
able to rely on relatively basic interest rate risk management processes. However, other
organisations that have more complex and wide-ranging activities are likely to require more
elaborate and formal interest rate risk management processes, to address their broad range
of financial activities and to provide senior management with the information they need to
monitor and direct day-to-day activities. Moreover, the more complex interest rate risk
management processes employed at such banks require adequate internal controls that
include audits or other appropriate oversight mechanisms to ensure the integrity of the
information used by senior officials in overseeing compliance with policies and limits. The
duties of the individuals involved in the risk measurement, monitoring and control functions
must be sufficiently separate and independent from the business decision makers and
position takers to ensure the avoidance of conflicts of interest.
25. As with other risk factor categories, the Committee believes that interest rate risk
should be monitored on a consolidated, comprehensive basis, to include interest rate
exposures in subsidiaries. At the same time, however, institutions should fully recognise any
legal distinctions and possible obstacles to cash flow movements among affiliates and adjust
their risk management process accordingly. While consolidation may provide a
comprehensive measure in respect of interest rate risk, it may also underestimate risk when
positions in one affiliate are used to offset positions in another affiliate. This is because a
conventional accounting consolidation may allow theoretical offsets between such positions
from which a bank may not in practice be able to benefit because of legal or operational
constraints. Management should recognise the potential for consolidated measures to
understate risks in such circumstances.
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III. Board and senior management oversight of interest rate risk6
26. Effective oversight by a bank's board of directors and senior management is critical
to a sound interest rate risk management process. It is essential that these individuals are
aware of their responsibilities with regard to interest rate risk management and that they
adequately perform their roles in overseeing and managing interest rate risk.
A. Board of directors
Principle 1: In order to carry out its responsibilities, the board of directors in a bank
should approve strategies and policies with respect to interest rate risk management
and ensure that senior management takes the steps necessary to monitor and control
these risks. The board of directors should be informed regularly of the interest rate
risk exposure of the bank in order to assess the monitoring and controlling of such
risk.
27. The board of directors has the ultimate responsibility for understanding the nature
and the level of interest rate risk taken by the bank. The board should approve broad
business strategies and policies that govern or influence the interest rate risk of the bank. It
should review the overall objectives of the bank with respect to interest rate risk and should
ensure the provision of clear guidance regarding the level of interest rate risk acceptable to
the bank. The board should also approve policies that identify lines of authority and
responsibility for managing interest rate risk exposures.
28. Accordingly, the board of directors is responsible for approving the overall policies of
the bank with respect to interest rate risk and for ensuring that management takes the steps
necessary to identify, measure, monitor, and control these risks. The board or a specific
committee of the board should periodically review information that is sufficient in detail and
timeliness to allow it to understand and assess the performance of senior management in
monitoring and controlling these risks in compliance with the bank's board-approved policies.
Such reviews should be conducted regularly, being carried out more frequently where the
bank holds significant positions in complex instruments. In addition, the board or one of its
committees should periodically re-evaluate significant interest rate risk management policies
as well as overall business strategies that affect the interest rate risk exposure of the bank.
29. The board of directors should encourage discussions between its members and
senior management - as well as between senior management and others in the bank -
regarding the bank's interest rate risk exposures and management process. Board members
need not have detailed technical knowledge of complex financial instruments, legal issues, or
of sophisticated risk management techniques. They have the responsibility, however, to
ensure that senior management has a full understanding of the risks incurred by the bank
6
This section refers to a management structure composed of a board of directors and senior management. The
Committee is aware that there are significant differences in legislative and regulatory frameworks across
countries as regards the functions of the board of directors and senior management. In some countries, the
board has the main, if not exclusive, function of supervising the executive body (senior management, general
management) so as to ensure that the latter fulfils its tasks. For this reason, in some cases, it is known as a
supervisory board. This means that the board has no executive functions. In other countries, by contrast, the
board has a broader competence in that it lays down the general framework for the management of the bank.
Owing to these differences, the notions of the board of directors and the senior management are used in this
paper not to identify legal constructs but rather to label two decision-making functions within a bank.
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and that the bank has personnel available who have the necessary technical skills to
evaluate and control these risks.
B. Senior management
Principle 2: Senior management must ensure that the structure of the bank's business
and the level of interest rate risk it assumes are effectively managed, that appropriate
policies and procedures are established to control and limit these risks, and that
resources are available for evaluating and controlling interest rate risk.
30. Senior management is responsible for ensuring that the bank has adequate policies
and procedures for managing interest rate risk on both a long-term and day-to-day basis and
that it maintains clear lines of authority and responsibility for managing and controlling this
risk. Management is also responsible for maintaining:
· appropriate limits on risk taking;
· adequate systems and standards for measuring risk;
· standards for valuing positions and measuring performance;
· a comprehensive interest rate risk reporting and interest rate risk management
review process; and
· effective internal controls.
31. Interest rate risk reports to senior management should provide aggregate
information as well as sufficient supporting detail to enable management to assess the
sensitivity of the institution to changes in market conditions and other important risk factors.
Senior management should also review periodically the organisation's interest rate risk
management policies and procedures to ensure that they remain appropriate and sound.
Senior management should also encourage and participate in discussions with members of
the board and, where appropriate to the size and complexity of the bank, with risk
management staff regarding risk measurement, reporting and management procedures.
32. Management should ensure that analysis and risk management activities related to
interest rate risk are conducted by competent staff with technical knowledge and experience
consistent with the nature and scope of the bank's activities. There should be sufficient depth
in staff resources to manage these activities and to accommodate the temporary absence of
key personnel.


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