Rate Environment Challenges Bank Interest Rate Risk Management
Interest rate risk sensitivity is garnering attention, given shifts in rates and trends in bank balance sheet information. This article reviews the current interest rate environment, analyzes aggregate bank balance sheet composition, and identifies potential risks associated with a rising rate environment. Findings from recent bank examination reports in which sensitivity to interest rate risk was considered problematic are reviewed, and identified weaknesses in risk measurement and modeling practices are highlighted. Examination findings generally indicate that the vast majority of insured institutions are managing exposure to interest rate sensitivity effectively.
Actions Against Individuals in Fraud-Related Cases: An Overview
First in a series about the enforcement action process as it applies to individuals, this article focuses on fraud and other misconduct by insiders and discusses internal control weaknesses that contribute to the perpetration of fraud. An overview of the statutory authority and policies that form the basis for FDIC enforcement actions in these instances is included.
Lending Implications of Credit Scoring Systems
Insured institutions have increased their use of credit scoring systems significantly. Although the proper use of these systems can help minimize the potential for unlawful discrimination, improper use can result in overt discrimination or disparate treatment, which could lead to fair lending violations. This article provides an overview of credit scoring systems and a conceptual framework for conducting a fair lending examination when a credit score is a factor in the lending decision.
Changing Landscape of Indirect Automobile Lending
Federal bank regulatory agencies and internal loan review departments traditionally have relied on a delinquency-based approach to evaluate automobile loan portfolios. However, heightened competition, combined with lax underwriting standards and lending controls, may require closer internal review and regulatory scrutiny. This article addresses risk management and consumer compliance risks associated with indirect auto lending programs and uses case studies to identify processes and procedures to control and mitigate those risks.
From the Examiner’s Desk... Enhancing Examiner Review of Technology Service Providers
In light of the increasing use of outsourcing arrangements for information technology services, this article provides an overview of the potential risks posed by technology service providers (TSPs) to insured institutions and offers a framework for analyzing these companies that incorporates publicly available information into the examination planning process. Combining supervisory information with carefully mined information and data from public sources will strengthen the development and maintenance of accurate and meaningful TSP risk profiles.
Accounting News: Other-Than-Temporary
Impairment of Investment Securities
Questions about the circumstances in which investors should recognize other-than-temporary impairments of investment securities have been a recent focus of financial institutions, their auditors, and the Financial Accounting Standards Board. This article discusses currently applicable accounting literature on impairment and its relationship to the examination process.
Supervisory Insights is published by the Division of Supervision and Consumer Protection of the Federal Deposit Insurance Corporation to promote sound principles and best practices for bank supervision.
Donald E. Powell
Michael J. Zamorski
Director, Division of Supervision
and Consumer Protection
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Scott M. Polakoff, Regional Director
Mark S. Schmidt, Regional Director
Christopher J. Spoth, Regional Director
Kim E. Lowry Managing Editor
Brett A. McCallister Financial Writer
April G. Schwab Financial Writer
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