Capital Markets Examiner School, Providence, RI

Interagency Advisory on Interest Rate Risk Management Frequently Asked Questions (2012)

• Question 9 – Can independent certifications/validations commissioned by model vendors satisfy supervisory expectations for model validation?

• Question 10 – Can you provide some examples of effective back-testing practices?

Interest Rate Risk Measurement Process

Inputs (GL, Loans,  Investments,  Deposits)

Model Outputs  (Net Interest  Income and  Economic Value of  Equity)

Interest Rate Risk  Measurement  Model/System

Scenarios (Shocks, Ramps, Non‐ Parallel)

Assumptions (Prepayments,  Betas, Average Life)