Third Party IRR Management Process Review

Third Party IRR Model & Management Process Validation Review

The Third Party IRR Model and Management Process Validation Review is frequently requested by regulators who would like to see an independent or outside review of the quality and effectiveness of the credit union’s IRR management process.

This review also meets the requirement of the recent IRR regulation requiring board of directors to ensure a review is completed. An important aspect of a Third Party Review also includes identifying potentials for performance improvement while mitigating resource requirements and the risk of loss due to IRR exposure.

Our comprehensive review performs an in-depth review of your IRR/ALM model as well as your entire IRR management process at a very competitive cost. The goal of the review is not only to provide you with the assurance that your IRR/ALM modeling and management process is reasonable, but to add value to your program.

All of the work will be conducted by one of our seasoned ALM/IRR professionals to optimize your results. The standard IRR Management Process Review consists of the following elements:

  • A review of the IRR Policy to ensure the completeness and effectiveness of the policy. This will include identifying potential for best practice enhancements.
  • A review of the IRR management process to address the roles of the board of directors, ALCO, and executive management. This will evaluate if the established interest rate risk management framework is appropriate, comprehensive, and effective. This also includes a review to evaluate adherence to the established framework.
  • A review of the IRR measurement and monitoring system to ensure all material IRR sources are identified, measured, and monitored. This includes a review of the level of data and chart of account disaggregation, data capture, and model setup given instrument characteristics. The outcome may include suggestions, improvements, and enhancements to the overall process.
  • A comprehensive review of the IRR modeling assumptions to ensure major modeling assumptions are reasonable in modeling the behavior of the balance sheet characteristic. These will be assessed relative to peer and other external source data as well as the credit union’s own support.
  • A review of the IRR management program controls that will include both internal controls at the governance framework level and operational level controls to provide assurance to the accuracy and consistency of the program.
  • A review of the decision-making process that includes the utilization of the IRR measurement and monitoring system.
  • Back testing of the credit union’s interest income simulation model output to actual results over a recent historical period. This will include a variance analysis of the comparison.
  • A written summary report including the findings encountered in the review, recommendations for corrective action when needed, and possible best practice potentials for improvements.
  • A Presentation of the written summary report can be provided either via a phone call, on-line meeting, or in-person. Travel expenses for the in-person visit will be billed separately.Optional Components:
    • A side by side comparison of the output from the credit union’s model to that provided by our own model when using similar inputs and assumptions.
Mark H Smith Inc ALM IRR Validation Service

If Third-Party IRR Management Process Review is for you,
please click on or call Michelle at (800) 268-7795
for further information.