US financial regulators released an advisory on Thursday reminding banks of the importance of sound practices to manage interest rate risk.

The advisory came from the Federal Financial Institutions Examination Council, which includes the Federal Reserve (Fed), the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).

This advisory, adopted by each of the financial regulators, reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the interest raterisk exposures of depository institutions. It also clarifies elements of existing guidance and describes some interest rate risk management techniques used by effective risk managers.

The financial regulators expect each depository institution to manage its interest rate risk exposures using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations.

Analysts said that although the advisory wasn't meant to signal any upcoming change in interest-rate policy by the Fed, it is unusual for the Council to issue such an advisory.

The last time it did so was in 1996, a Fed spokeswoman said.

In order to fight the financial crisis and economic recession, the Fed has cut the country's key bank lending rate to a record low near zero in December 2008 and has been keeping it at this level so far.

Some economists think the Fed might begin to raise rates later this year to safeguard against any inflation problems.

"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 on Thursday

(Xinhua News Agency January 8, 2010).