On Friday, Federal Reserve Vice Chairman Donald L. Kohn spoke at the FDIC‘s Symposium on Interest Rate Risk Management in Arlington, Virginia.
Vice Chairman Kohn stated that, although the Federal Open Market Committee (FOMC) made clear at its meeting earlier this week that it expects interest rates to remain low for an extended period, it will be appropriate at some point to raise rates as the economy recovers. Kohn noted that interest rate risk is inherent in the business of banking, as detailed in the interest rate risk advisory released by the federal financial regulators in early January. Given this inherent risk and the uncertainties surrounding the timing and impact of future changes in interest rates, it is challenging to effectively manage interest rate exposure. However, banking organizations must remain vigilant in employing sound interest rate risk management, even in the midst of the current credit crisis, to prevent interest rate risk from undermining the safety and soundness of lenders.