Two decades of government hand-holding on interest rate risk might be over for thrifts. With the Office of the Comptroller of the Currency slated to absorb the Office of Thrift Supervision next summer, the future of the personalized interest rate risk assessment that the OTS supplied quarterly to thrifts remains undetermined.
For thrifts, particularly small ones, the potential termination of a service they have long relied upon is another burden and added cost they are expecting in connection with the Dodd-Frank law.
"There are only so many hours in the day," said Michael J. Mellon, the president of American Savings FSB in Munster, Ind. "As community bankers, there is already a myriad of things we do. So to throw one more thing at us can really make it overwhelming."
The net portfolio value model, as the OTS calls it, was born out of the savings and loan crisis, which was at least partially attributed to interest rate risk.
The model was designed to address the inherent sensitivity that thrifts face, given their retail deposit focus and mortgage lending business. It is supposed to spot interest rate risk trends earlier and identify outliers.
The process involves taking confidential data and using it to estimate the market value of the thrift's balance-sheet and off-balance-sheet exposures and then analyzing how the market value fluctuates with up to 300-basis-point shocks. From there, thrifts are told whether their interest rate risk is minimal, moderate, significant or high.
The industry has lauded the model, and Harvard University honored it in 1995.
"It is an area where the OTS has really excelled," said Kip Weissman, a lawyer at Luse Gorman Pomerenk & Schick. "It is a valuable tool and is user-friendly and is an instance where the OCC can learn from the OTS."
