Published in: FMS Magazine

As regulated as the banking industry is, risk management can seem like a “check-the-box” activity. In a great piece titled “The Profitable Side of Risk Management,” Michael Giarla rejects the perception of risk management as a necessary evil that detracts from bank profitability, and instead promotes the idea that proper risk management is an important factor to an institution’s success. While overregulation certainly is a hot topic today, proper risk management remains a timeless element in long-run profitability.

Central to most risk management programs is managing interest-rate risk (IRR), although strategies to manage and target this risk vary across the industry. Ultimately, an institution’s tolerance for IRR is set by its board. Given that some institutions are comfortable operating with higher levels of IRR than others, it’s worth asking whether higher levels of IRR are correlated with higher levels of profitability.

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