The Basel Committee on Banking Supervision is weighing updating its standards for capturing interest-rate risk
on assets banks plan to hold to maturity, Stefan Ingves, the regulator's chairman, said in an interview.
That interest-rate risk
stool consists of repricing, embedded options, basis and yield curve risks.
By factoring in the timing of both the incoming and outgoing cash flow and pulling down a forward curve, a consultant, San Francisco-based Aperimus, built an interest-rate risk
model that calculates income results on existing business.
For example, if a series of futures contracts or options is used to hedge an interest-rate risk
from a taxpayer's issuance of fixed interest-rate debt, any gain or loss on the hedging transactions should be accounted for using a constant yield method over the instrument's life.
Moreover, market value reporting provides better information about interest-rate risk
management, he said, since it incorporates current interest rates into the measurement of values of all financial assets and liabilities, thereby reflecting the sensitivity of future earnings to movements in interest rates.
In addition to the general risks associated with real-estate investment, REIT investing entails other risks, such as credit and interest-rate risk
While it is a business consideration faced by financial intermediaries, interest-rate risk
is ignored in accounting procedures.
Long-term bonds are more exposed to interest-rate risk
than short-term bonds.
Because MPP assets are riskier and more complex to manage than the bank's traditional advances business, the Seattle Bank expects that exiting the MPP will reduce its interest-rate risk
and help to decrease its operating costs.
The bank reduced its interest-rate risk
by decreasing mortgage loans held for portfolio to $9.
While the majority of student loan transactions still use senior-subordinate structures, there has been an increase in the issuance of LIBOR floating-rating notes in recent years, which according to Fitch Senior Director David Hartung, introduces increased interest-rate risk
and basis risk to transactions.
Under the three-year plan, the Seattle Bank will pursue a business model focused on the bank's traditional, mission-related role of advances lending, a strategy that should reduce the Seattle Bank's exposure to interest-rate risk