An Examination of Student Loan Interest Rate Proposals in the

instead, the fuller assessment would provide a more nuanced measure of a firm’s interest rate sensitivities. new proposal by the basel committee on banking supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. focus on how these new strategies differ from the strategies previously employed, ignoring rate shock risk. the “slope” factor affects the slope of the yield curve by moving short- and long-term rates in opposite directions, which relates to the bcbs steepener and flattener scenarios. such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. for example, flattening scenarios show the interest rate gap that arises when the rates banks pay on short-term liabilities rise faster than the rates they receive on longer-term loan assets.

High Interest Rate Environment and Its Implications for Actuarial

basel committee on banking supervision has proposed two methods to set regulatory capital requirements for banks’ interest rate risk exposures within the banking book: a standardized approach based on a series of regulatory choices, including a set of specified interest rate scenarios, and approaches based on banks’ own risk modeling efforts.%—chance of occurring within our simulation, and thus provides very limited information for calibrating regulatory capital or for broader interest rate risk management.” more generally, risk analysis based on a more complete modeling of scenarios provides a richer framework for setting bank capital standards and managing interest rate risk. while the banking book need not account for interest rate fluctuations directly, there remains some underlying risk. focus our analysis on the standardized approach, which uses specific interest rate scenarios to evaluate a firm’s banking book. while interest rate risk is certainly more immediate for marketable securities such as government or corporate bonds, other assets and liabilities that are not generally marked-to-market each day are also subject to interest rate risk.

A Proposal for an Interest Rate Dampener for Solvency II to Manage

instead, using a modeling framework with a plausible range of interest rate scenarios would be more relevant to help banks manage their interest rate risk. (2015) to incorporate the likelihood of certain scenarios suggests that the scenarios specified by the bcbs are very unlikely to occur. we assess two of the main scenario types in the proposal. in our exercise, an interest rate risk manager interested in a 10-year yield change corresponding to a 5% probability could determine that an 84 basis point increase would be the appropriate threshold.%—chance of occurring within our simulation, and thus provides very limited information for calibrating regulatory capital or for broader interest rate risk management. example would be disintermediation caused by a rush of deferred annuity policyholders looking to replace their low portfolio earnings rate with a much higher new money rate.

Assessing Supervisory Scenarios for Interest Rate Risk

in our exercise, an interest rate risk manager interested in a 10-year yield change corresponding to a 5% probability could determine that an 84 basis point increase would be the appropriate threshold. for example, flattening scenarios show the interest rate gap that arises when the rates banks pay on short-term liabilities rise faster than the rates they receive on longer-term loan assets. again, due to current low short-term rates, we assess only those scenarios that represent a flattening of the yield curve. you intend to submit a proposal, please e-mail written notification by july 31, 2016 to. the “slope” factor affects the slope of the yield curve by moving short- and long-term rates in opposite directions, which relates to the bcbs steepener and flattener scenarios. reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available.

RESEARCH PROPOSAL

would be potential product design implications in a high interest rate environment? again, due to current low short-term rates, we assess only those scenarios that represent a flattening of the yield curve. committee on finance research may also choose to market and promote the research to members, candidates and other interested parties. the person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted. example, when rates spiked up, it presented an opportunity for cash value whole life policyholders to "arbitrage" their policy loans, because the maximum loan rate was set by state law. of the main risks banks must account for is interest rate fluctuations, along with the associated changes in the values of their assets and liabilities.

Research Proposal Debt Composition and Balance-Sheet Effects of

is current practice on modeling other interest rate sensitive features (e. committee for finance research would like to sponsor some independent research, also to include a current literature search, on the topic of dealing with a sudden rise in interest rates, and how this type of situation is being, or could be, modeled. in other words, a cash value whole life policyholder with a maximum policy loan rate of 7 or 8% could take out a loan and reinvest the proceeds in a risk-free treasury bond paying 15%. while cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor. the strength of this kind of probability-based stress-testing framework is that it provides a more comprehensive view of possible interest rate moves and their likelihoods. in that regard, our results could help guide policymakers in determining whether the proposed standards meet the stated goal of setting “appropriate capital to cover potential losses from exposures to changes in interest rates.

RESEARCH PROPOSAL

however, since they emphasize unlikely interest rate scenarios, these proposals have important limitations when compared with more comprehensive interest rate modeling and risk management techniques. while the banking book need not account for interest rate fluctuations directly, there remains some underlying risk. on the parallel scenario, figure 2 plots the joint probability of a minimum increase of 100 basis points in both the short-term rate (three-month treasury yield) and the long-term rate (30-year treasury yield), as well as milder parallel increases of 25, 50, and 75 basis points for various holding periods. the numerical insights from applying these scenarios give bank risk managers information on the greatest sensitivities to interest rate changes and how to reduce them if needed. similarly, a risk manager could see that the interest rate scenarios that have approximately 5% chance of occurring are a 25 basis point flattener at a one-year horizon and a 50 basis point flattener at a horizon of 2. conversely, the term “steepener” corresponds to scenarios that have long-term rates rising by as much as or more than short-term rates decline.

RESEARCH PROJECT PROPOSAL

using a method that assesses not only potential yield curve changes but also incorporates the likelihood of various interest rate changes should provide a more comprehensive approach to managing interest rate risk. suggestions in the proposal for ensuring timely deliver, such as fee adjustments, are encouraged. the committee on finance research is interested in completing this project in a timely manner. of the main risks banks must account for is interest rate fluctuations, along with the associated changes in the values of their assets and liabilities. Instead, using a modeling framework with a plausible range of interest rate scenarios would be more relevant to help banks manage their interest rate risk. in this economic letter, we assess some of these proposals in the context of the probability-based stress-testing framework developed by christensen, lopez, and rudebusch (2015).

The Implications of Ultra-Low and Negative Interest Rates for Asia

conversely, the term “steepener” corresponds to scenarios that have long-term rates rising by as much as or more than short-term rates decline. we then generate 50,000 simulations to ensure that the tails of the yield distributions are well represented. any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. the strength of this kind of probability-based stress-testing framework is that it provides a more comprehensive view of possible interest rate moves and their likelihoods. to the bcbs flattener proposal, we again follow the guidelines and consider a scenario in which the three-month treasury yield increases a minimum of 100 basis points, while the 30-year treasury yield decreases by at least the same amount. while interest rate risk is certainly more immediate for marketable securities such as government or corporate bonds, other assets and liabilities that are not generally marked-to-market each day are also subject to interest rate risk.

rates have been very low for quite some time, and the insurance industry has had to deal with the consequences of an extended period of such low rates.: lines show the probability for an increase of at least the stated number of basis points (bps) in both the short-term and long-term rates. the bcbs uses the term “flattener” to correspond to scenarios in which longer-term rates decline by as much or more than short-term rates rise. new proposal by the Basel Committee on Banking Supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. facilitate the evaluation of proposals, the following information should be submitted:Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research.: lines show the probability for an increase in the short-term rate of at least the stated number of basis points (bps) and a decrease in the long-term rate by at least the same amount.

the numerical insights from applying these scenarios give bank risk managers information on the greatest sensitivities to interest rate changes and how to reduce them if needed. in addition, it allows us to readily generate the value-at-risk estimates often used to manage bank exposure to market risks (see bcbs 2011). “modeling yields at the zero lower bound: are shadow rates the solution?: lines show the probability for an increase in the short-term rate of at least the stated number of basis points (bps) and a decrease in the long-term rate by at least the same amount. the parallel shift scenarios provide insights into how a common rise in interest rates would affect a firm given its funding strategy, for example paying higher rates on deposits, and the duration of its loan portfolio, for example the sensitivity of loan values to interest rate changes. focus our analysis on the standardized approach, which uses specific interest rate scenarios to evaluate a firm’s banking book.

Research proposal on interest rate

new proposal by the basel committee on banking supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. (2015) to incorporate the likelihood of certain scenarios suggests that the scenarios specified by the bcbs are very unlikely to occur. new proposal by the Basel Committee on Banking Supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. we find that the bcbs proposals can provide some basic insights into managing interest rate risk and might be appropriate for setting regulatory capital standards. interest rate risk insights derived from these two types of scenarios are complementary.  by submitting a proposal, you agree to cooperate with the committee on finance research in publicizing or promoting the research and responding to media requests.

interest rate risk insights derived from these two types of scenarios are complementary. we assess two of the main scenario types in the proposal. however, since they emphasize unlikely interest rate scenarios, these proposals have important limitations when compared with more comprehensive interest rate modeling and risk management techniques. Committee for Finance Research would like to sponsor some independent research, also to include a current literature search, on the topic of dealing with a sudden rise in interest rates, and how this type of situation is being, or could be, modeled.  the committee on finance research is responsible for the selection of the proposal to be funded. to the bcbs flattener proposal, we again follow the guidelines and consider a scenario in which the three-month treasury yield increases a minimum of 100 basis points, while the 30-year treasury yield decreases by at least the same amount.

in that regard, our results could help guide policymakers in determining whether the proposed standards meet the stated goal of setting “appropriate capital to cover potential losses from exposures to changes in interest rates.. short-term rates are near the zero lower bound, we consider only upward shifts of the yield curve. in this economic letter, we assess some of these proposals in the context of the probability-based stress-testing framework developed by christensen, lopez, and rudebusch (2015).” more generally, risk analysis based on a more complete modeling of scenarios provides a richer framework for setting bank capital standards and managing interest rate risk.. short-term rates are near the zero lower bound, we consider only upward shifts of the yield curve. instead, the fuller assessment would provide a more nuanced measure of a firm’s interest rate sensitivities.
. guaranteed minimum benefit utilization pattern, crediting rate strategies, new premium ) in a pop-up scenario? we then generate 50,000 simulations to ensure that the tails of the yield distributions are well represented. Instead, using a modeling framework with a plausible range of interest rate scenarios would be more relevant to help banks manage their interest rate risk. using a method that assesses not only potential yield curve changes but also incorporates the likelihood of various interest rate changes should provide a more comprehensive approach to managing interest rate risk. it is anticipated that all proposers will be informed of the status of their proposal by the end of october 2016. the bcbs uses the term “flattener” to correspond to scenarios in which longer-term rates decline by as much or more than short-term rates rise.

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