--- title: Three Most Frequent Pitfalls of Interest Rate Risk Management Programs description: Read this blog by Former Senior FDIC Examiner and Capital Markets Expert, Dave Wicklund, to learn the most common pitfalls of interest rate risk management programs. image: https://blog.plansmith.com/hubfs/14.png --- [CALL TOLL-FREE 1-800-323-3281](https://www.plansmith.reachproductions.net/project/call-toll-free-1-800-323-3281/) [![Plansmith](https://blog.plansmith.com/hs-fs/hubfs/Plansmith-Logo.png?width=764&height=135&name=Plansmith-Logo.png "Plansmith")](https://www4.plansmith.com) - Solutions - [Budgeting](https://www4.plansmith.com/budgeting/) - [ALM](https://www4.plansmith.com/alm) - [ALM Advisory Services](https://www4.plansmith.com/alm/advisory-services/) - [CECL](https://www4.plansmith.com/cecl/) - [Strategy](https://www4.plansmith.com/strategy/) - [Market Intelligence](https://www4.plansmith.com/market-intelligence/) - Products - [StrategyGPS](https://www4.plansmith.com/strategygps/) - [Compass](https://www4.plansmith.com/compass/) - [BankersGPS](https://www4.plansmith.com/bankersgps/) - Resources - [Blog](https://blog.plansmith.com/) - [Videos](https://plansmith.wistia.com/projects/7qemazkqii) - [Compass Tutorials](https://info.plansmith.com/compass-tutorials) - [Lunch N’ Learn](https://info.plansmith.com/lunch-n-learns) - [Webinars](https://www4.plansmith.com/webinars/) - [About](https://www4.plansmith.com/about/) - [Schedule A Discovery Call](https://www4.plansmith.com/contact-us/) - [CALL TOLL-FREE 1-800-323-3281](tel:8003233281) # Plansmith Blog # Three Most Frequent Pitfalls of Interest Rate Risk Management Programs Posted by [Dave Wicklund](https://blog.plansmith.com/author/dave-wicklund) on 12/2/24 12:02 PM - [Tweet](https://twitter.com/share) Establishing and maintaining a sound interest rate risk (IRR) management program is crucial to ensure proper balance sheet structure and comply with Regulatory expectations. During my 20+ years as a senior FDIC examiner, I routinely saw organizations experiencing issues with their ALM/IRR practices, ranging from loose misunderstandings of the guidance to critical errors that put the health of the organization at risk. Unfortunately, in my current advisory role, all too often, I see the same issues. At Plansmith, we understand that IRR may not be something you deal with on a daily basis, or were ever extensively trained in. Perhaps you filled a role within your organization where the previous individual had poor processes in place, and you inherited the resulting task of weeding through the mess. Or, possibly you came into a situation where there was little to no process in place. Or, maybe your team has a fairly strong IRR management program in place, but tasks fall through the cracks due to lack of time, resources, or experience. Given our experience examining and advising financial institutions, we can easily spot issues, identify solutions, and implement programs to counteract bad processes utilized by well-meaning financial institution managers. While virtually all financial institutions conduct regular IRR modeling, there are three common pitfalls that can quickly derail any IRR management program. 1. **Bad Assumptions** Assumptions are the foundation of any financial model, and IRR models are no exception. As such, the model assumptions are typically subject to close scrutiny by examiners and auditors. They tend to view loan prepayments, deposit pricing (betas), and non-maturity deposit decay rates as the three assumptions that have the most influence on the model. Regulatory guidance notes that all model assumptions should be based on institution-specific data (not market, peer, or industry data), be well supported and documented, and be regularly reviewed and updated by management. This is particularly critical now that we’ve shifted from a rising rate environment to falling rates, and many assumptions may now require material revisions. Failure to adequately update and support changing assumptions frequently leads to exam criticisms and unreliable model results. 2. **Incomplete IRR Management Programs** According to Regulatory guidance, IRR management programs should include: - - IRR models that are consistent with the size and complexity of the institution - Assumptions that are well documented and developed using institution-specific data - ALCO and Board Reporting (at least quarterly) - Backtesting and Sensitivity Testing - Comprehensive policies that include limits for all IRR measurements 1. **Not Being Prepared for Exams and Audits** Having and running a good IRR model is not enough. Not understanding what the model is telling you, not knowing what the regulatory expectations are, and not complying with prior exam recommendations can all lead to regulatory criticisms ranging from informal recommendations to formal enforcement actions. It is critical that financial institution managers understand the model results, can explain them to the Board and examiners, and can reconcile variances from prior periods. The key takeaway is that regardless of your personal understanding of interest rate risk, the dangers of not addressing potential issues are real. Don’t feel embarrassed if you’re not certain that your IRR management program meets expectations – simply reach out to the experts and get a second opinion as soon as possible.  So, if you struggle with these pitfalls, or if you are unsure if your IRR management processes measure up, we can help. Give us a call or email us at [advisory@plansmith.com](mailto:advisory@plansmith.com) to discuss your organization's individual needs.   ![Wicklund Head Shot 1-1](https://blog.plansmith.com/hs-fs/hubfs/Wicklund%20Head%20Shot%201-1.jpg?width=109&height=136&name=Wicklund%20Head%20Shot%201-1.jpg)Dave Wicklund *Director of ALM Advisory Services*     Topics: [interest rate risk management](https://blog.plansmith.com/topic/interest-rate-risk-management), [IRR](https://blog.plansmith.com/topic/irr), [asset liability management](https://blog.plansmith.com/topic/asset-liability-management) ### Subscribe Now! ### Posts by Tag - [community bank planning (52)](https://blog.plansmith.com/topic/community-bank-planning) - [community bank strategy (52)](https://blog.plansmith.com/topic/community-bank-strategy) - [community bank (49)](https://blog.plansmith.com/topic/community-bank) - [community bank budget software (45)](https://blog.plansmith.com/topic/community-bank-budget-software) - [credit union planning (44)](https://blog.plansmith.com/topic/credit-union-planning) - [community bank budgeting (42)](https://blog.plansmith.com/topic/community-bank-budgeting) - [budgeting (39)](https://blog.plansmith.com/topic/budgeting) - [interest rate risk (35)](https://blog.plansmith.com/topic/interest-rate-risk) - [community bank interest rate risk (33)](https://blog.plansmith.com/topic/community-bank-interest-rate-risk) - [community bank budget (30)](https://blog.plansmith.com/topic/community-bank-budget) - [strategic planning (28)](https://blog.plansmith.com/topic/strategic-planning) - [asset liability management (27)](https://blog.plansmith.com/topic/asset-liability-management) - [interest rate risk management (27)](https://blog.plansmith.com/topic/interest-rate-risk-management) - [community bank marketing strategy (26)](https://blog.plansmith.com/topic/community-bank-marketing-strategy) - [fintech (26)](https://blog.plansmith.com/topic/fintech) - [community bank ALCO (25)](https://blog.plansmith.com/topic/community-bank-alco) - [social media for community banks (24)](https://blog.plansmith.com/topic/social-media-for-community-banks) - [strategy (24)](https://blog.plansmith.com/topic/strategy) - [IRR (22)](https://blog.plansmith.com/topic/irr) - [bank strategy (21)](https://blog.plansmith.com/topic/bank-strategy) - [social media (20)](https://blog.plansmith.com/topic/social-media) - [strategic thinking (20)](https://blog.plansmith.com/topic/strategic-thinking) - [ALCO (19)](https://blog.plansmith.com/topic/alco) - [community bank forecasting (17)](https://blog.plansmith.com/topic/community-bank-forecasting) - [strategic planning for banks (17)](https://blog.plansmith.com/topic/strategic-planning-for-banks) - [ceo (16)](https://blog.plansmith.com/topic/ceo) - [Strategic Plan (12)](https://blog.plansmith.com/topic/strategic-plan) - [bank strategic planning software (12)](https://blog.plansmith.com/topic/bank-strategic-planning-software) - [community bank planning software (12)](https://blog.plansmith.com/topic/community-bank-planning-software) - [leadership (12)](https://blog.plansmith.com/topic/leadership) - [CECL (11)](https://blog.plansmith.com/topic/cecl) - [Customer Service (9)](https://blog.plansmith.com/topic/customer-service) - [playbook (9)](https://blog.plansmith.com/topic/playbook) - [alm (8)](https://blog.plansmith.com/topic/alm) - [bank budget (8)](https://blog.plansmith.com/topic/bank-budget) - [bank irr reporting (8)](https://blog.plansmith.com/topic/bank-irr-reporting) - [liquidity (8)](https://blog.plansmith.com/topic/liquidity) - [credit union interest rate risk (7)](https://blog.plansmith.com/topic/credit-union-interest-rate-risk) - [crisis planning (7)](https://blog.plansmith.com/topic/crisis-planning) - [forecasting (7)](https://blog.plansmith.com/topic/forecasting) - [budget playbook (6)](https://blog.plansmith.com/topic/budget-playbook) - [compass (6)](https://blog.plansmith.com/topic/compass) - [Outsource IRR (5)](https://blog.plansmith.com/topic/outsource-irr) - [banker education (5)](https://blog.plansmith.com/topic/banker-education) - [surge deposits (5)](https://blog.plansmith.com/topic/surge-deposits) - [bank mission vision core values (4)](https://blog.plansmith.com/topic/bank-mission-vision-core-values) - [continuing education (4)](https://blog.plansmith.com/topic/continuing-education) - [credit union budgeting (4)](https://blog.plansmith.com/topic/credit-union-budgeting) - [millennials (4)](https://blog.plansmith.com/topic/millennials) - [reforecasting (4)](https://blog.plansmith.com/topic/reforecasting) - [IRR Assumptions (3)](https://blog.plansmith.com/topic/irr-assumptions) - [board training (3)](https://blog.plansmith.com/topic/board-training) - [branch budgeting (3)](https://blog.plansmith.com/topic/branch-budgeting) - [decay rate (3)](https://blog.plansmith.com/topic/decay-rate) - [millennial employees in banking (3)](https://blog.plansmith.com/topic/millennial-employees-in-banking) - [rising rates (3)](https://blog.plansmith.com/topic/rising-rates) - [what-ifs (3)](https://blog.plansmith.com/topic/what-ifs) - [AI (2)](https://blog.plansmith.com/topic/ai) - [FDIC (2)](https://blog.plansmith.com/topic/fdic) - [backtesting (2)](https://blog.plansmith.com/topic/backtesting) - [bank brand marketing (2)](https://blog.plansmith.com/topic/bank-brand-marketing) - [board of directors (2)](https://blog.plansmith.com/topic/board-of-directors) - [compliance (2)](https://blog.plansmith.com/topic/compliance) - [cost center budgeting (2)](https://blog.plansmith.com/topic/cost-center-budgeting) - [deposit study (2)](https://blog.plansmith.com/topic/deposit-study) - [deposit trends (2)](https://blog.plansmith.com/topic/deposit-trends) - [funds transfer pricing (2)](https://blog.plansmith.com/topic/funds-transfer-pricing) - [market intelligence (2)](https://blog.plansmith.com/topic/market-intelligence) - [millennials in banking (2)](https://blog.plansmith.com/topic/millennials-in-banking) - [modern human resources strategy for banks (2)](https://blog.plansmith.com/topic/modern-human-resources-strategy-for-banks) - [peer analysis (2)](https://blog.plansmith.com/topic/peer-analysis) - [stress testing (2)](https://blog.plansmith.com/topic/stress-testing) - [Insider (1)](https://blog.plansmith.com/topic/insider) - [asset prepayments (1)](https://blog.plansmith.com/topic/asset-prepayments) - [baby boomers (1)](https://blog.plansmith.com/topic/baby-boomers) - [brand (1)](https://blog.plansmith.com/topic/brand) - [client spotlight (1)](https://blog.plansmith.com/topic/client-spotlight) - [contingency funding plan (1)](https://blog.plansmith.com/topic/contingency-funding-plan) - [credit union strategic planning software (1)](https://blog.plansmith.com/topic/credit-union-strategic-planning-software) - [employee human resources for banks (1)](https://blog.plansmith.com/topic/employee-human-resources-for-banks) - [event (1)](https://blog.plansmith.com/topic/event) - [financial institution succession planning (1)](https://blog.plansmith.com/topic/financial-institution-succession-planning) - [funding (1)](https://blog.plansmith.com/topic/funding) - [loan prepayments (1)](https://blog.plansmith.com/topic/loan-prepayments) - [market analysis (1)](https://blog.plansmith.com/topic/market-analysis) - [negative rates (1)](https://blog.plansmith.com/topic/negative-rates) - [policy (1)](https://blog.plansmith.com/topic/policy) - [ppp loans (1)](https://blog.plansmith.com/topic/ppp-loans) - [profitability (1)](https://blog.plansmith.com/topic/profitability) - [sensitivity testing (1)](https://blog.plansmith.com/topic/sensitivity-testing) - [social video for banks (1)](https://blog.plansmith.com/topic/social-video-for-banks) - [strategic action plan (1)](https://blog.plansmith.com/topic/strategic-action-plan) - [trade show (1)](https://blog.plansmith.com/topic/trade-show) See all ### Recent Posts - Navigate - [Home](https://www4.plansmith.com/) - [Budgeting](https://www4.plansmith.com/budgeting/) - [Asset Liability Management](https://www4.plansmith.com/alm/) - [CECL](https://www4.plansmith.com/cecl/) - [Strategy](https://www4.plansmith.com/strategy/) - [Market Intelligence](https://www4.plansmith.com/market-intelligence/) - [About](https://www4.plansmith.com/about/) - [Contact Us](https://www4.plansmith.com/contact-us/) - Products - [StrategyGPS](https://www4.plansmith.com/strategygps/) - [Compass](https://www4.plansmith.com/compass/) - [BankersGPS](https://www4.plansmith.com/bankersgps/) - Resources - [Blog](https://blog.plansmith.com) - [Videos](https://plansmith.wistia.com/projects/7qemazkqii) - [Compass Tutorials](https://info.plansmith.com/compass-tutorials) - [Lunch n' Learns](https://info.plansmith.com/lunch-n-learns) - [Webinars](https://www4.plansmith.com/webinars/) #### Contact 1827 Walden Office Square, Ste. 350 Schaumburg IL 60173 Toll Free: 1.800.323.3281 Local: 1.847.359.4045 Fax: 1.847.705.8200 info@plansmith.com Copyright 2018 | Plansmith Corporation ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Dave Wicklund", "url" : "https://blog.plansmith.com/author/dave-wicklund" }, "dateModified" : "2025-06-30T17:56:21.836Z", "datePublished" : "2024-12-02T18:02:00.000Z", "headline" : "Three Most Frequent Pitfalls of Interest Rate Risk Management Programs", "image" : [ "https://blog.plansmith.com/hubfs/14.png" ], "mainEntityOfPage" : { "@id" : "https://blog.plansmith.com/three-most-frequent-pitfalls-of-irr-management-programs-2024", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://blog.plansmith.com/hubfs/Plansmith-Logo-Budgeting-ALM-Outsourcing-01.png" }, "name" : "Plansmith" } } ```