Regulators tells banks to prep for higher rates
By JEANNINE AVERSA
AP Economics Writer
Financial regulators told banks Thursday to have procedures in place to minimize their risks from loans when rock-bottom interest rates start to rise.
The advisory came from the Federal Financial Institutions Examination Council, which includes the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The advisory wasn't meant to signal any upcoming change in interest-rate policy by the Fed.
To nurture the budding recovery, the Fed has slashed a key bank lending rate to a record low near zero, where it has been for a year. When the economy is on firm ground, the Fed at some point will start boosting rates. Some economists think the Fed might begin to raise rates later this year to safeguard against any inflation problems.
It's unusual for the council to issue such an advisory. The last time it did so was in 1996, a Fed spokeswoman said.
"In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates," the council said in the advisory issued Thursday.
Higher interest rates make it more expensive for banks to borrow and increase their costs of doing business. The council suggested that banks make sure they have sufficient capital cushions to protect against any possible losses.
"In this challenging environment, funding longer-term assets with shorter-term liabilities can generate earnings, but also poses risks to an institution's capital and earnings," the council said.
The council said banks should be testing their risk-management systems for scenarios including instantaneous and significant changes in interest rates.
Deficiencies in banks' risk-management systems - along with lax regulation - have been blamed for contributing to the financial meltdown. The crisis, the worst since the 1930s, was triggered in 2007 when home mortgages soured as the housing market collapsed.
What You Will Find Here
- OJOS11
- Articles and news of general interest about investing, saving, personal finance, retirement, insurance, saving on taxes, college funding, financial literacy, estate planning, consumer education, long term care, financial services, help for seniors and business owners.
READING LIST
Blog List
-
-
The EU Is Spending Billions on Hydrogen-Ready, But Where’s the Hydrogen? - I'm all in favor of hydrogen-powered plants to produce electricity if only we had cheap hydrogen. But we don't and likely won't.
-
How Companies Dodge Tariffs - Protectionist trade policies are popular on both the left and right. But some economists say they’re likely to backfire.
-
Neom wants to build a 1,500-foot infinity pool that's almost 4 times longer than one in Dubai - The pool planned for the Treyam region of Saudi Arabia's Neom megaproject will be 1,500 feet long and suspended 220 feet above the sea if completed.
-
Everybody Else Is Reading This - Snowflakes That Stay On My Nose And Eyelashes Above The Law Trump’s New Birth Control […]
-
Maximizing Employer Stock Options - Oct 29 – On this edition of Lifetime Income, Paul Horn and Chris Preitauer discuss the benefits of employee stock options and how to best benefit from th...
-
Wayfair Needs to Prove This Isn't as Good as It Gets - Earnings were encouraging, but questions remain about the online retailer's long-term viability.
-
Hannity Promises To Expose CNN & NBC News In "EpicFail" - *"Tick tock."* In a mysterious tweet yesterday evening to his *3.19 million followers,* Fox News' Sean Hannity offered a preview of what is to come from ...
-
Don’t Forget These Important Retirement Deadlines - *Now that fall is in full swing, be sure to mark your calendar for steps that can help boost your tax-advantage retirement savings.*