Internal Control Questionnaires and Verification Procedures

Risk Measurement Models

1. Is balance sheet information upgraded and kept current when it is used in operating interest rate risk models?

2. Is the current position data (e.g., balances, maturities, rates) used in the bank’s interest rate risk measurement system sufficient and accurate?

3. Is there sufficient cross-training of bank staff so that operation of the bank’s models is not dependent on one or two employees?

4. Are off-balance-sheet activities such as options, futures, swaps, caps, and floors adequately incorporated into the risk measurement system?

5. Are all key assumptions and data input used in the measurement system documented with sufficient detail so as to allow verification of their reasonableness and accuracy?

6. Is there adequate documentation of the measurement methodology in order to verify the accuracy of its calculations?

7. Are the assumptions used for the measurement systems, pricing, and volume relationships consistent with the interest rate scenarios used in the risk measurement process?

8. Can management determine the amount of interest rate risk in the current balance sheet based on reports and models available in the bank?

9. Are asset and liability totals on reports tied to or consistent with general ledger totals?

10. Does the audit function check the accuracy of financial information needed to measure interest rate risk? Does it verify:

    1. The accuracy and completeness of data input to ensure that all major instruments, portfolios, and contractual terms are correctly identified?

    2. That all major instruments, portfolios, and business units are captured in the interest rate measurement system?

11. Does the audit function independently verify the accuracy of interest rate risk measurement systems (including gap reports and earnings and economic value simulation models)?

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