0SEC Adopts Amendments to Remove Certain NRSRO Credit Rating Related References in Rule 5b-3 under the Investment Company Act and Fund Portfolio Holdings Table Requirements
On December 27, 2013, the SEC adopted final amendments (“Final Amendments”) to remove certain references to ratings by nationally recognized statistical rating organizations (“NRSROs”) (e.g., Standard & Poor’s, Moody’s Investor Services or Fitch Ratings) in (1) Rule 5b-3 under the Investment Company Act of 1940 and (2) the requirements for portfolio holdings tables in registered fund shareholder reports as set forth in certain forms under the Investment Company Act of 1940 (SEC Release No. IC‑30847) (the “Release”). The Final Amendments respond to Section 939A of the Dodd-Frank Act, which requires that each Federal agency, including the SEC, remove from its regulations “any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness as each respective agency shall determine as appropriate for such regulations.” (The SEC also issued a companion release adopting amendments that remove credit rating references in certain rules under the Securities Exchange Act of 1934, as discussed elsewhere in this edition of the Financial Services Alert.)
Amendments to Rule 5b-3
The Final Amendments substitute an alternative standard designed to reflect a similar degree of credit quality for the NRSRO credit rating standards currently used, in part, to determine whether a repurchase agreement is “collateralized fully” for purposes of Rule 5b‑3 under the Investment Company Act. Under the relevant part of Rule 5b-3, a registered fund that meets specified conditions is allowed to treat a repurchase agreement as the acquisition of the securities collateralizing the repurchase agreement for purposes of meeting certain diversification and broker-dealer counterparty requirements under the Investment Company Act. Under the current requirements, a repurchase agreement is collateralized fully if, among other things, the collateral for the repurchase agreement consists entirely of (i) cash items, (ii) government securities, (iii) securities that at the time the repurchase agreement is entered into are rated in the highest rating category by the “requisite NRSROs” or (iv) unrated securities that are of comparable quality to the securities that are rated in the highest rating category by the requisite NRSROs, as determined by the fund’s board of directors or its delegate. The Final Amendments replace categories (iii) and (iv) with a new category: securities that the fund’s board of directors or its delegate determines at the time the repurchase agreement is entered into are: (a) issued by an issuer that has an exceptionally strong capacity to meet its financial obligations on the securities collateralizing the repurchase agreement; and (b) sufficiently liquid such that they can be sold at approximately their carrying value in the ordinary course of business within seven calendar days.
Under the Final Amendments, a fund board or its delegate is required to make credit quality determinations for all collateral securities that are not cash items or government securities, not just for unrated securities. The Final Amendments do not include specific factors or tests that the board or its delegate must apply in performing its credit analysis. Rather, the Release discusses factors that a board may consider, including reports, opinions and other assessments issued by third parties, including NRSROs. The Release states that a board should evaluate the basis for using any third-party assessment, including an NRSRO rating, in determining whether collateral meets the new standard. The Release makes clear that fund boards cannot rely solely on the credit ratings of an NRSRO without performing additional due diligence. Fund boards are permitted to establish their own additional criteria for what the fund may accept as collateral for repurchase agreements under the Final Amendments, and, as currently allowed, may delegate the credit quality and liquidity determinations that the board believes are within the delegate’s expertise if the board retains sufficient oversight.
The Release observes that funds may need to amend their written policies and procedures and the provisions addressing collateral credit quality in their repurchase agreement arrangements with counterparties to ensure that they are reasonably designed to comply with the new standards of the Final Amendments (e.g., by changing or eliminating the consideration of specific credit ratings or incorporating other third-party evaluations of credit quality). The Release also notes that the Final Amendments “[do] not prohibit fund boards (or their delegates) from considering the credit quality standards in current repurchase agreements and policies and procedures adopted to comply with the current rule as part of their analysis, provided that fund boards (or their delegates) determine that the ratings specified in the repurchase agreements and policies and procedures meet the standards we are adopting today, and that the agencies providing the ratings used in the policies and procedures are credible and reliable for that use.”
The Final Amendments also adopt, as proposed, an amendment to Rule 5b-3 to define the issuer of a collateral security to include the issuer of an unconditional guarantee of that collateral security, such that a collateral security with an unconditional guarantee whose issuer meets the new credit quality test will satisfy that element of the standard. The Final Amendments do not affect money market funds that seek special treatment of their repurchase agreement holdings under the diversification provisions of Rule 2a-7 under the Investment Company Act.
Shareholder Report Requirements
The Final Amendments revise the shareholder report requirements in Forms N-1A, N-2 and N-3 under which a mutual fund, closed-end fund or insurance company separate account that offers variable annuities (each, a “Fund”), respectively, must present its portfolio holdings in a table, chart or graph organized by reasonably identifiable categories, such as type of security, industry sector, geographic region, credit quality, or maturity, in a manner reasonably designed to depict clearly the types of investments made by the Fund, given its investment objectives. The Final Amendments remove the current requirement under which a Fund that organizes the required table of portfolio holdings based on credit quality categorizations must use NRSRO credit ratings for that purpose. Accordingly, under the Final Amendments, a Fund that uses credit quality categorizations may do so based on credit ratings assigned by NRSROs, credit ratings assigned by credit rating agencies that are not NRSROs, or alternative categorizations that are not based on ratings provided by credit rating agencies, such as internal credit assessments.
A Fund must provide near, or as part of, the table that presents portfolio holdings based on credit quality, a description of how the credit quality of the holdings was determined, and if credit ratings assigned by a credit rating agency are used, an explanation of how they were identified and selected. According to the Release, the description should include the credit quality evaluation process, the rationale for its selection, and an overview of the factors considered, such as the terms of the security (e.g., interest rate, and time to maturity), the obligor’s capacity to repay the debt, and the quality of any collateral. In addition, “[t]his description should include, if applicable, a discussion of: (i) the criteria considered or process used in selecting the credit ratings (e.g., the fund might use the median credit rating from among three rating agencies); (ii) how the fund evaluated those criteria (i.e., the due diligence performed); (iii) how the fund reports credit ratings for any security that is not rated by the credit rating agency selected if the fund has a policy of using the ratings of a single rating agency (e.g., has the fund selected a designated alternate rating agency); (iv) how the fund reports credit ratings for any security that is not rated by any credit rating agency (i.e., the process for self-rating); or (v) other fund policies on selecting credit ratings for purposes of disclosure.”
The Release cautions that “[i]f a Fund does not use credit ratings, we note that it might be misleading for a fund to describe its portfolio holdings quality with similar descriptions as the ratings nomenclature used by rating agencies (e.g., AAA, Aa), or to characterize the securities as ‘rated.’ If a fund chooses to depict its portfolio using credit ratings issued by a credit rating agency, a fund could choose to use the median credit rating from among multiple credit rating agencies (discarding the highest and lowest ratings) when a security is split-rated. We note, however, that it might be misleading for a fund to disclose an average credit quality rating that is based on ratings from multiple credit rating agencies because credit rating agencies may use different criteria to evaluate the credit quality of an issuer. A fund might also choose other methods for evaluating credit quality of portfolio securities, such as a policy of selecting the highest or lowest credit rating for split-rated securities among the ratings issued by certain specified rating agencies.”
Effective Dates and Compliance
The Final Amendments take effect 30 days after their forthcoming publication in the Federal Register. Compliance is not required until 180 days after publication.
0SEC Adopts Amendments Removing References to Credit Ratings from Exchange Act Rules Relating to Broker-Dealer Financial Responsibility and Confirmations of Transactions
The SEC issued Release No. 34-71194 (the “Adopting Release”) adopting amendments under the Securities Exchange Act of 1934 (the “Exchange Act”) that remove references to credit ratings by ratings agencies (including nationally recognized statistical rating agencies or “NRSROs”) in certain rules and one form relating to broker-dealer financial responsibility and confirmations of securities transactions (the “Amendments”). The Amendments are part of the SEC’s response to Section 939A of the Dodd-Frank Act, which requires that each Federal agency, including the SEC, remove from its regulations “any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness as each respective agency shall determine as appropriate for such regulations.” With certain modifications, the Amendments are generally consistent with corresponding proposals in Release No. 34-64352 (the “Proposing Release”), which was discussed in the May 3, 2011 Financial Services Alert. The Adopting Release notes that the SEC is reviewing comments and considering alternatives related to proposed changes to Regulation M under the Exchange Act also included in the Proposing Release, which it intends to address separately. At the same time as the Adopting Release, the SEC issued a companion release adopting amendments that remove certain NRSRO credit rating related requirements in Rule 5b-3 under the Investment Company Act and in the portfolio holdings tables requirements for registered fund shareholder reports, as summarized elsewhere in this edition of the Financial Services Alert.
This article provides a summary of the Amendments.
The Broker-Dealer Financial Responsibility Rules
Net Capital Rule
Rule 15c3-1 prescribes a net liquid assets test that is designed to require a broker-dealer to maintain sufficient liquid assets to meet all obligations to customers and counterparties and have adequate additional resources to wind down its business in an orderly manner without the need for a formal proceeding if the firm fails financially. In regard to this test, and related computations, a broker-dealer must make certain calculations and adjustments, including prescribed percentage deductions (“haircuts”) from the mark-to-market value of specific proprietary positions (e.g., securities, money market instruments, and commodities) that, under the current version of Rule 15c3-1, vary based on corresponding credit ratings. In the Proposing Release, the SEC proposed an alternative standard of creditworthiness as a condition for qualifying for lower haircuts, while retaining conditions permitting the application of lower haircuts to these classes of securities that are not based on credit ratings. The SEC adopted the amendments described in the Proposing Release, with certain modifications.
Removal of References. The Amendments replace references to NRSRO credit ratings in the provisions establishing lower haircuts for commercial paper, nonconvertible debt, and preferred stock (each, a “security”) with an alternative standard for establishing that the securities involve a minimal amount of credit risk. Consistent with the Proposing Release, when a broker-dealer applies haircuts for a security that has a ready market for purposes of its net capital computation, it will have the option of: (1) using the firm’s own written policies and procedures to determine whether the security has only a minimal amount credit risk and, if so, applying the appropriate lower haircut if it meets the other conditions prescribed in Rule 15c3-1 or (2) applying the greater deduction applicable to the position, such as the 15% haircut under the catchall provision of Rule 15c3-1(c)(vi)(J). Thus, the Amendments provide that a broker-dealer may apply the lower haircuts applicable to commercial paper (i.e., between 0% and 1⁄2 of 1%), nonconvertible debt (i.e., between 2% and 9%), and preferred stock (i.e., 10%) if the security has only a minimal amount of credit risk. A security without a ready market, however, will continue to be subject to a 100% haircut. In the Adopting Release, the SEC noted that it did not intend for the new standard to result in a more liberal requirement that broadens the scope of the rule by allowing more positions to qualify for the haircuts.
Factors to Assess Credit Risk. When assessing whether a security or money market instrument has only a minimal amount of credit risk for purposes of Rule 15c3-1, a broker-dealer may consider, pursuant to the requisite policies and procedures and to the extent appropriate, the following factors: (i) credit spreads; (ii) securities-related research; (iii) internal or external credit risk assessments; (iv) default statistics; (v) inclusion in an index; (vi) enhancements and priorities; (vii) price, yield and/or volume; and (viii) asset class-specific factors. The SEC made clear its intention that this list of factors not be considered exhaustive or mutually exclusive.
Higher Haircuts. Under the Amendments, a broker-dealer must apply a higher haircut on a proprietary position in a security if the firm determines the security has more than a minimal amount of credit risk or the firm opts not to have the policies and procedures called for by Rule 15c3-1. If the security held by the broker-dealer does not trade in a ready market, the broker- dealer must, as in the current rule, apply a 100% haircut irrespective of the firm’s credit risk determination.
Record Retention. Under the Amendments, and consistent with the Proposing Release, a broker-dealer must preserve and maintain records related to Rule 15c3-1 in the manner required by Rule 17a-4(a)(13). The Amendments do not require a broker-dealer to maintain a record of each of its credit risk determinations for purposes of Rule 15c3-1 but a broker-dealer would need to be able to support each of its credit risk determinations both for internal risk management purposes and in the context of an SEC or other regulatory examination, either with records of its credit risk determinations or access to records of inputs used at the time of the original determination from which it can replicate the outputs generated by the model used by the broker-dealer in making the determination.
Policies and Procedures. The SEC restructured the Amendments by adding a new paragraph to specify requirements applicable to the policies and procedures called for by Rule 15c3-1. Consistent with the Proposing Release, the Amendments require that the security or money market instrument have only a minimal amount of credit risk in order for the lower haircut to be applied; however, the reference to policies and procedures in such security-specific paragraphs has been removed. Instead, a new paragraph applicable to various types of securities and money market instruments generally requires that (a) broker-dealers assess the creditworthiness of the security or money market instrument pursuant to policies and procedures for assessing and monitoring creditworthiness that the broker or dealer establishes, documents, maintains, and enforces and (b) such policies and procedures must be reasonably designed for the purpose of determining whether a security or money market instrument has only a minimal amount of credit risk. Securities or money market instruments assessed to have only a minimal amount of credit risk also must meet the other non-credit rating conditions prescribed in Rule 15c3-1 in order to apply the lower haircuts available under applicable paragraphs. In the Adopting Release, the SEC noted that the word “monitoring” had been added to clarify that, after the initial determination by a broker-dealer, a position must continue to have only a minimal amount of credit risk in order to remain qualified for the lower haircut and that monitoring must be done in accordance with the firm’s policies and procedures.
Updating Assessments. In the Proposing Release, the SEC requested comment on how often a broker-dealer should be required to update its assessments. In the Adopting Release, the SEC noted that it generally believes the frequency of review should depend on a variety factors but also noted that the requirement for a broker-dealer to maintain its required minimum amount of net capital is moment-to-moment. Consequently, the SEC indicated that a broker-dealer’s policies and procedures intended to satisfy Rule 15c3-1 must include a process that is designed to ensure that its credit determinations are current, and address the frequency with which the broker-dealer reviews and reassesses its credit determinations.
Reasonably Designed. The SEC also modified the Proposing Release by including a qualifier that the policies and procedures prescribed by the rule must be “reasonably designed” for the purpose of assessing creditworthiness. The SEC noted in the Adopting Release that it generally believes the starting point for reviewing whether a firm is in compliance with the Amendments should be to evaluate the reasonableness of the firm’s policies and procedures in light of the firm’s circumstances (e.g., the size of the broker-dealer and the types and sizes of the positions typically held by the broker-dealer). In this regard, the SEC indicated that the policies and procedures must specify with sufficient detail the steps the broker-dealer will take in performing a credit assessment so that SEC and SRO examiners can evaluate them.
The Adopting Release provides that policies and procedures that are reasonably designed “should result in assessments of creditworthiness that typically are consistent with market data.” As noted in the Adopting Release, this standard for evaluating the reasonableness of a broker-dealer’s policies and procedures will require examiners to compare market data (e.g., external factors such as credit spreads or yields) with the broker-dealer’s determinations that a security has only a minimal amount of credit risk. Notwithstanding the reasonableness of a broker-dealer’s policies and procedures, examiners may still question a broker-dealer’s credit risk determination, and are particularly likely to question a determination related to large concentrated positions or that is not consistent with market data.
SEC Discussion of Costs of Credit Risk Determinations. In the section of the Adopting Release discussing the costs and benefits of the rule amendments, the SEC noted that two commenters had provided comments on the cost of compliance with the Rule 15c3-1 amendments. One noted that “the cost and complexity of developing a credit evaluation infrastructure covering many issuers and securities may be beyond the means of many broker-dealers” and the second stated the view that “the cost to comply may be prohibitively high for the smaller or middle-market broker-dealers.” The SEC responded that it does not intend or expect broker-dealers to individually duplicate the function of credit rating agencies. It further stated that it expected the costs of conforming to the amendments to Rule 15c3-1 to be minimal for large broker-dealers that already have a sophisticated internal credit review function but conceded that broker-dealers with less sophisticated internal procedures for analyzing credit risk would incur costs to establish and develop procedures to assess financial instruments for the purpose of determining whether the lower haircut may be applied. Finally, the SEC noted that, because it had not specified a list of factors to be used to make the assessment, firms will be able to create policies and procedures using a small number of objective factors and external assessments. The SEC did, however, provide a list of factors a broker-dealer could consider, to the extent appropriate, when assessing whether a security or money market instrument has only a minimal amount of credit risk for purposes of Rule 15c3-1, noting it did not intend the list to be exhaustive or mutually exclusive.
Appendices and Form Amendments
The SEC also adopted amendments, certain of which are non-substantive conforming edits, to Appendices A, E, F, and G to Rule 15c3-1, Form X-17A-5, Part IIB, and Appendix A to Rule 15c3-3 under the Exchange Act as proposed.
Transaction Confirmation Rule
Rule 10b-10 under the Exchange Act, the SEC’s customer confirmation rule, generally requires broker-dealers effecting transactions for customers in securities, other than U.S. savings bonds or municipal securities, to provide those customers with a written notification, at or before completion of the securities transaction, disclosing certain information about the terms of the transaction. Paragraph (a)(8) of Rule 10b-10 requires a broker-dealer to inform the customer in the confirmation if a debt security, other than a government security, is unrated by an NRSRO. The Amendments delete paragraph (a)(8) from Rule 10b-10.
EffectivenessThe Amendments will become effective 180 days after their forthcoming publication in the Federal Register.
0CFTC Allows Non-U.S. Entities to Comply with Home Jurisdiction Swap Requirements in Lieu of Certain U.S. Regulations
The CFTC has determined that certain entity-level swap requirements of six non-U.S. jurisdictions are generally “comparable” to those of the Commodity Exchange Act and CFTC regulatory regime. This means that “substituted compliance,” in which a non-U.S. person may follow certain requirements of its home jurisdiction in lieu of those of the United States, is available under certain conditions with respect to those jurisdictions, as established in the CFTC’s cross-border guidance. The determinations were made for Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland. The CFTC also issued comparability determinations with respect to certain transaction-level requirements for the European Union and Japan.
The determinations apply to specified regulations only, and the CFTC has not yet made final determinations regarding various other regulations. In several cases, certain rules were excepted from the determinations. For example, the Australian regime (alone among the six jurisdictions) was found not to be comparable with respect to CFTC Regulation 3.3(e), which requires a swap dealer or major swap participant to produce an annual report meeting certain requirements, while none of the six jurisdictions were found to be comparable with respect to CFTC Regulation 3.3(f), which requires the chief executive officer or chief compliance officer of a swap dealer or major swap participant to certify that the annual compliance report is accurate and complete and requires that the report be furnished to the CFTC. The CFTC also made no determination regarding CFTC Regulation 23.609, which pertains to clearing member risk management, for Hong Kong or Switzerland because the CFTC determined that neither jurisdiction currently has laws or regulations comparable to CFTC Regulation 23.609.
Related Action by DSIO
In a related action, the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued a no-action letter providing time-limited no-action relief for registered swap dealers and major swap participants that are non-U.S. persons (“covered persons”) established under the laws of certain of these jurisdictions from the requirements to comply with certain regulations for which comparability was not found. Specifically, DSIO indicated that it would not recommend an enforcement action prior to March 3, 2014, for covered persons established in Australia, Canada, the European Union, Japan, and Switzerland with regard to CFTC Regulations 23.600(c)(2) (which requires a swap dealer or major swap participant to produce quarterly risk reports and provide them to its senior management, governing body, and the CFTC) and 23.608 (which imposes certain restrictions on counterparty clearing relationships).
DSIO provided similar no-action relief to covered persons established in Switzerland from CFTC Regulation 23.609, which pertains to clearing member risk management. Although (as noted above) the CFTC did not issue a comparability determination for either Hong Kong or Switzerland with regard to CFTC Regulation 23.609, the no-action letter explains that no Hong Kong entity is currently required to comply with Regulation 23.609, and therefore no relief is necessary.
Related Action by DMO
In yet another related action, the CFTC’s Division of Market Oversight (“DMO”) issued time-limited no-action relief from certain aspects of its regulations under Part 45 (which governs swap data reporting) and Part 46 (which governs swap data reporting for historical swaps) (collectively, the “SDR Reporting Rules”), which were not covered by the comparability determinations. The relief applies to swap dealers and major swap participants established in Australia, Canada, the European Union, Japan, and Switzerland that are not part of an affiliated group in which the ultimate parent entity is a U.S. swap dealer, U.S. major swap participant, U.S. bank, U.S. financial holding company, or U.S. bank holding company. The relief provides that DMO will not recommend that an enforcement action be taken with regard to such persons for failure to comply with the SDR Reporting Rules with respect to its swaps with non-U.S. counterparties that are not guaranteed affiliates or conduit affiliates of a U.S. person until the earlier of December 1, 2014, and 30 days after the CFTC issues a comparability determination with respect to the SDR Reporting Rules for the relevant jurisdiction. The relief also applies to such persons with respect to their swaps with non-U.S. counterparties that are guaranteed affiliates or conduit affiliates of a U.S. person; that relief expires on March 3, 2014 with respect to the Part 45 rules, and April 2, 2014, with respect to the Part 46 rules.
The relief does not apply to the CFTC’s record-keeping rules included in Parts 45 and 46, and also does not apply to the reporting obligation of other entities, such as swap execution facilities.
0FDIC Releases Videos Designed to Provide Information to Bank Directors, Officers and Employees Regarding Municipal Securities, the Allowance for Loan and Lease Losses, Troubled Debt Restructuring and Fair Lending
The FDIC released four new videos (the “Videos,” and each a “Video”) designed to provide technical assistance to directors, officers and employees of depository institutions that are FDIC insured. The Videos are available on the FDIC’s website as part of the FDIC’s “Directors Resource Center.” The four Videos, which were released on December 31, 2013, concern, respectively: (1) municipal securities; (2) the allowance for loan and lease losses; (3) troubled debt restructuring; and (4) fair lending.
The Video concerning municipal securities is focused on the evaluation of municipal securities and supervisory expectations concerning how banks analyze municipal securities prior to purchase, how they monitor holdings of municipal securities on an ongoing basis, and how municipal securities are addressed in the applicable bank’s investment policies.
The Video regarding the allowance for loan and lease losses (“ALLL”) provides assistance to depository institutions on how to develop a methodology to establish an appropriate ALLL. The FDIC states that the Video “provides an overview of applicable interagency policy statements, discusses pertinent accounting standards, reviews measuring impairment and estimating credit losses, and illustrates an effective loss migration analysis.”
The Video concerning troubled debt restructuring (“TDR”) provides guidance for depository institutions on how to identify a TDR, and the accounting and regulatory treatment of a TDR. The Video, which provides a number of illustrative examples of TDRs, also explains the “multiple note concept” used in connection with certain TDRs.
Finally, the FDIC’s Video concerning management of fair lending risk discusses the key elements of an effective fair lending compliance management system. The Video discusses the requirements of the fair lending laws, summarizes the concepts of disparate treatment and disparate impact, reviews fair lending risk indicators and describes what the FDIC believes are effective strategies to mitigate fair lending risk.
0FDIC’s Supervisory Insights Includes Article on Interest Rate Risk Management
The FDIC’s Division of Risk Management Supervision’s Winter 2013 issue of Supervisory Insights includes an article (the “Article”) that discusses how the banking industry’s asset mix and funding profile have shifted during the recent five-year period of historically low interest rates and how this shift has resulted in increased interest rate risk (“IRR”) exposure for many banks. The FDIC notes that the concerns center on lengthened asset maturities and a potentially more rate-sensitive mix of liabilities. The Article also provides a discussion of supervisory expectations as to how banks should address IRR management and the FDIC suggests certain IRR management strategies that can be used by banks to assess and mitigate their respective IRR exposure. In the Article, the FDIC identifies certain common pitfalls in IRR management that have been identified by FDIC examiners:
- The Board and senior management do not regularly review or approve policies, procedures, risk limits, or strategies.
- Risk limits are not defined or not appropriate for risk tolerance of the institution.
- Policies and procedures do not specify oversight responsibilities for measuring, monitoring, or controlling IRR.
- Assumptions are not regularly updated or are not reasonable for a given interest rate shock scenario (e.g., specified asset prepayments or non-maturity deposit price sensitivity and decay rates) or do not take into account specific characteristics of certain assets and liabilities (e.g., influence of loan floors and caps on rate exposure).
- Stress tests do not incorporate significant rate shocks (for example, 300- and 400-basis point shocks) and other severe but plausible scenarios specific to the particular risks of the bank. Results of stress tests are not compared to internal risk limits.
- Models used to measure and manage IRR are not adequate given the complexity of the institution’s balance sheet (i.e., the model cannot accurately measure embedded options).
- An imbalance in the duration of assets and liabilities presents a marked exposure to changes in interest rates.
- The potential exists for significant securities portfolio depreciation in relation to capital in the event of a significant increase in interest rates.
Eric R. FischerRetired Partner
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