Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

WASHINGTON, D. C.  20551

DIVISION OF BANKING
SUPERVISION AND REGULATION

SR 00-2 (TRN)
February 8, 2000

TO THE OFFICER IN CHARGE OF SUPERVISION
          AT EACH FEDERAL RESERVE BANK


SUBJECT: The Addition of Fundamentals of Interest Rate Risk Management Course to Examiner Training Program

                     The Staff Development/Utilization and System Performance Subcommittee recently approved the addition of a new course, Fundamentals of Interest Rate Risk Management (FIRRM), as a required element of the training program described in SR letter 98-2 and related documents.  FIRRM is required for all assistant safety and soundness examiners preparing for a commission under SR letter 98-2.


COURSE OVERVIEW

                     FIRRM provides assistant safety and soundness examiners with an understanding of interest rate risk concepts and methodologies and liquidity trends.  In addition, FIRRM prepares participants to identify and draw conclusions about interest rate and investment risk issues encountered on examinations.  The course supplements and reinforces concepts introduced in earlier courses taken under the SR letter 98-2 training program, better prepares the participant for more advanced coursework, and provides a more practical exposure to topics such as interest-risk modeling and hedging strategies.

                     The course is 3½ days in length and requires approximately 4 - 6 hours of precourse work.  FIRRM is to be taken after an assistant safety and soundness examiner completes Operations and Analysis School and Self-Study Program #2.  In addition, FIRRM is a prerequisite for Examination Management (XMan).  Questions derived from the class are incorporated into the Second "Safety and Soundness" Proficiency Examination.

                     The course does not directly affect the curriculum of the consumer affairs and information technology specialty areas.1  However, assistant examiners from these specialty areas may attend FIRRM.  Also, currently commissioned examiners who desire a refresher in interest rate risk and investment portfolio management may benefit from FIRRM.

                     As SR letter 98-2 promotes flexibility within the System's training program, Reserve Banks are encouraged to identify additional individual training needs that should be addressed.  Accordingly, when FIRRM is held regionally, which is expected to be the more typical case, Reserve Banks are welcome to use the remaining 1 - 1½ days of the course week to tailor additional training to meet Reserve Bank specific needs.  For example, if FIRRM started on a Monday, the Reserve Bank might wish to use Thursday afternoon and Friday to present Reserve Bank specific issues that are not part of the basic course material.


RATIONALE FOR THE NEW COURSE

                     The development of FIRMM resulted from the review of capital markets materials in the existing SR letter 98-2 training program by a System work group.2  The purpose of the review was to ensure that newly developed courses were adequately preparing examiners for interest rate and investment risk issues they will face on the job and that examiners' skill levels progress appropriately through the entire SR letter 98-2 curriculum.

                     The review indicated that capital markets and interest rate sensitivity materials presented in the courses that assistant examiners were to complete before XMan, though appropriate in context, did not sufficiently prepare assistant examiners for the full range of market risk issues presented in XMan.  In addition, the XMan prerequisites, as outlined in SR letter 98-2, did not provide sufficient opportunity for practical application of these job skills or prepare assistant examiners to take a leading role in these areas during the examination process.


IMPLEMENTATION

                     As previously noted, FIRRM is required for all assistant safety and soundness examiners subject to the SR letter 98-2 training program.  If you have questions regarding this letter, please contact Sid Sussan, Deputy Associate Director, at (202) 452-2638 or Robert Leibowitz, Manager, Supervisory Education, at (202) 973-5078.


Richard Spillenkothen
Director


Cross-Reference:  SR 98-2



Notes:

1.   Since the trust specialty curriculum is under review, the applicability of this letter to assistant trust examiners subject to the SR letter 98-2 training program is still pending.  However, any assistant trust examiner completing the interim SR letter 98-2 training requirements must complete FIRRM.  Questions derived from the class are incorporated into the interim Second "Trust" Proficiency Examination.  Return to text

2.   The work group included representatives of the Banking and Supervision Elements, Operations and Analysis School, Examination Management, Self-Study Programs, Loan Analysis School, and Capital Markets course committees, as well as the Core Curriculum Review Group.  Return to text


SR letters | 2000