The U.S. Federal Reserve Thursday released an advisory reminding banks of its’ expectations for their interest rate risk management practices.

It reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls, it also clarifies elements of existing guidance, and describes the techniques used by effective risk managers.

The Fed notes that financial regulators (including the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Financial Institutions Examination Council State Liaison Committee) recognize that some interest rate risk is inherent in the banking business, but that firms are expected to have sound risk-management practices to identify, measure and control their exposures.

“If an institution determines that its core earnings and capital are insufficient to support its level of interest rate risk, it should take steps to mitigate its exposure, increase its capital, or both,” it advises.

IE