Given the historic low U.S Treasury rate environment and the recent 150 basis point near-immediate drop in rates, we’re expecting an increased regulatory focus on interest rate risk (IRR) and liquidity management.
It’s no doubt that financial institutions will see pressure to not only reforecast their 2020 budgets, but also to run future IRR shocks and more custom “what-if” scenarios as part of their regular IRR modeling program. Liquidity management and stressed-scenario cash flow modeling are also more important now than ever.
Another vital activity is updating and documenting key model assumptions and inputs. This is an activity that should be done regularly regardless, but needs particular attention now because of the current economic environment. All critical model assumptions and inputs should be identified in writing, supported with qualitative AND quantitative analysis, and periodically reviewed (at least annually; more frequently in periods of significant changes in market rates).
Most models require assumptions for these 5 areas:
- Repricing Assumptions (Loans, Securities, and Deposits)
- Non-maturity Deposit (NMD) Decay Rates
- Prepayments/Amortization (Loans and Securities)
- Early Withdrawals of CDs
- Discount Rates
Does your ALM management program measure up?
To help you determine the answer, we’ve made a list of the essentials your IRR Management Program should contain. Click here to review it.
If you’re struggling with any of these items or missing them all together, Plansmith can help. We offer everything from ALM advisory services to full outsourced packages that fit your unique needs and budget.
To see how interest rate risk and liquidity cash flow model outsourcing can ensure you meet regulatory expectations, schedule a call with one of our ALM Advisory experts today. 
Email us at info@plansmith.com to learn more.
Dave has over 20 years of regulatory experience serving as a Capital Market Subject Matter Expert and ALM Specialist for the FDIC and now oversees all of our ALM Advisory Services.