Interest Rate Risk Management

Paper Summary:

This paper provides an overview and analysis of interest rate risk (IRR)management using the Federal Reserve Bank of San Francisco's (2004) Economic Letter. It looks at IRR management as a tool for understanding how organizations approach risk management and why risk management and interest rate is so important to a financial institution's ability to conduct business. The paper also reviews the impact of global policies and regulatory procedures on interest risk management and ascertains whether such measures are possible and whether such measures would prove beneficial for banks and other financial institutions throughout the world.

Table of Contents:
Introduction
Interest Rate Risk
Mitigating Interest Rate Risk
Universal Guidelines for Risk Management
Efficacy and Analysis
Conclusions

From the Paper:

"While there is no way to control economic upswings or downturns in many cases, banks can do much to help protect their assets and limit interest rate risk through proper management. This can be accomplished through global and regional guidelines, and even guidelines established within specific banking institutions. Oversight by a board of directors and senior management team, combined with the approval of the public, may result in greater efficiency and better universal management of risk. Most banks have the resources to adopt a policy such as this with minimal investment of time. In the interests of reducing interest rate risk, most banks should at the very least attempt the policies and procedures offered in this analysis, and assess what if any positive changes result."

Sample of Sources Used:

• FRBSF. (2004, Sep). Supervising interest rate risk management. Federal Reserve Bank of San Francisco, Economic Letter 2004-26. Accessed, 20, May 2007: http://frbsf.org/publications/economics/letter/2004/el2004-26.html

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