Fed up with worrying about low interest rates?

Market risk can encompass a range of balance sheet considerations, but for many banks it generally is manifested in interest rate risk. This article will focus on market risk in the community banking industry, although it will have relevance to all financial institutions. In January 2010, the Federa...

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Bibliographic Details
Published in:The RMA Journal 2013-07, Vol.95 (10), p.16
Main Author: Clarke, Jim
Format: Article
Language:English
Subjects:
Balance sheets
Banks
Committees
Community banks
Decision making
Economic conditions
Federal Reserve monetary policy
Financial institutions
Forecasts and trends
Inflation
Inflation rates
Interest rate risk
Interest rates
Investments
Opportunity costs
Regulation of financial institutions
Risk management
Statistics
Treasury notes
Unemployment
Volatility
Yield curve
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Summary:Market risk can encompass a range of balance sheet considerations, but for many banks it generally is manifested in interest rate risk. This article will focus on market risk in the community banking industry, although it will have relevance to all financial institutions. In January 2010, the Federal Financial Institutions Examination Council propagated new guidelines on interest rate risk. At that time the concern was centered on the historically low-interest-rate environment and the possibility that short-term rates would increase substantially, compounding the credit issues banks were facing. But in April, a panel of federal regulators and the Financial Stability Oversight Council warned that a sudden rise in interest rates could have a destabilizing effect on financial markets. When long-term rates eventually revert to a more normal level, the industry will experience a substantial decline in portfolio value and a decline in market-value capital ratios.
ISSN:1531-0558