Interest Rate Risk Management’s Higher-Tech Moment

Because of a historical concentration on credit risk management, as Donald van Deventer sees it, “U.S. regulators have ignored interest rate risk-related regulations for more than 30 years.”

“Regulations are lagging both best practice and emerging best practice by several decades,” contends van Deventer, the Kamakura Corp. founder who is managing director of risk research and quantitative solutions at SAS. “It’s the real risk of failure – not regulation – that’s driving financial institutions to abandon common-practice risk systems in favor of best-practice enterprise risk management solutions.”

The spotlight shining on interest rate risk (IRR) – intensified by conditions that brought about the March 2023 Silicon Valley Bank failure and heightened regulatory concerns – is also bringing into view new data, decision-support and workflow tools capable of improving IRR management.

Van Deventer references a 2018 article in Central Banking, co-written by the late Bank for International Settlements official Philip Turner, warning that interest rate risks could spark the next great financial crisis. That was prescient, in that the October...