The short & long term impacts of interest rate risk in the banking book (IRRBB)
With historically low interest rates and radically uncertain times during and after the COVID19 crisis, which in turn is leading to unpredictable customer behaviours, it is increasingly prudent for ADIs to proactively monitor their business risks associated with lending and borrowing that depend on interest rate movements and customer behavioural changes.
Similar to other risks associated with the banking business such as Credit/Market/Liquidity/Operational risks, ADIs should be simulating the impact on their interest rate related risk profile by considering macro-economic outlook into their scenarios and take appropriate actions to mitigate any short term or long-term impacts that is beyond the risk appetite of the bank.
This paper discusses interest rate risk in the banking book (IRRBB) and highlights the need for ADI’s to strategically consider the process, tools and methodologies applied in assessing, monitoring and managing this risk efficiently and in a timely manner during the current environment.
Download the whitepaper here.