Summary: | The FDIC has announced the release of the Summer 2005 issue of Supervisory Insights , a professional journal that promotes the practice of bank supervision. Supervisory Insights is available on the FDIC's Web site at www.fdic.gov . |
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Financial Institution Letters
FIL-52-2005 June 27, 2005 |
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Supervisory Insights
Journal
The Federal Deposit Insurance Corporation (FDIC) has announced the release of its Summer 2005 issue of Supervisory Insights , a professional journal that promotes the practice of bank supervision. Articles featured in this issue describe a number of areas of current supervisory focus at the FDIC. Topics addressed include the potential for increased interest rate risk in a rising rate environment given shifts in bank balance sheet composition, fair lending implications of credit scoring systems, effects of increasing competition in automobile financing on underwriting practices, a review of the enforcement action process as it relates to individuals, a discussion of how the use of publicly available information can strengthen examiner review of technology service providers, and accounting guidance for recognizing other-than-temporary impairments of investment securities. The lead article in this issue discusses how rising interest rates and a flattening yield curve could pressure net interest margins, particularly for liability-sensitive banks with increased exposure to long-term assets. The article "A Changing Rate Environment Challenges Bank Interest Rate Risk Management" notes that aggregate industry trends – specifically higher levels of exposure to long-term assets, concentrations in mortgage-related assets, and a greater reliance on non-core funding sources that exhibit optionality – raise concern during a period of rising rates about the potential for heightened levels of interest rate risk. It is difficult to draw conclusions about the level of interest rate risk based solely on off-site information. Therefore, the article emphasizes off-site and industry-wide analysis must be joined with on-site examination findings to assess accurately a bank's interest rate risk exposure and the effectiveness of its risk management processes. The results of on-site examinations identify certain areas where banks can improve risk measurement and management processes. Overall, however, few banks are exhibiting material concerns related to sensitivity to interest rate risk. The FDIC believes the articles appearing in the current issue will provide valuable and useful information to insured financial institution management and staff. Supervisory Insights is available on the FDIC's Web site at www.fdic.gov .
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Additional Related Topics:
- Interest rate risk
- Enforcement actions
- Credit scoring systems
- Indirect automobile lending
- Technology service providers
- Other-than-temporary impairment of investment Securities