"Interest rate risk of banks cannot be managed over and over again by their regulator. "Recourse to such asymmetric options - heads I win, tails the regulator dispenses - is akin to the use of steroids. "Those who swing bank investment portfolio for the fences and put bank capital at excessive limits relative to the approved levels should be held accountable when their bets go bad due to poor or no risk management. Not all volatility is due to 'black swan' events that deserve risk-takers being carried through," he said.Stating that such measures are not "rocket science", Acharya said managing the interest rate risks better requires governance mechanisms at the highest levels, an incentive to manage it, and a top-down organisational strategy to implement. "The treasury functions at banks need to be modernised with urgency, subjected to careful scrutiny by Boards, overlaid with prudent risk management practises, and trained to employ hedging instruments specifically targeted at managing interest rate risk," he said.

Source: Economic Times January 15, 2018 16:18 UTC