Interest Rate Risk in the Banking Book Introduction

Interest Rate Risk in the Banking Book Introduction

For a bank, the act of undertaking ordinary customer business generates interest rate risk. Moorad explains: why this is the case, the different forms of interest rate risk, and strategies used to manage these risks.
Overview

Interest rate risk in the banking book, or IRRBB, is the risk associated with interest rates on a bank’s accrual based book. These risks can take the form of gap risk, optionality, yield curve risk or basis risk. These risks must be effectively managed as they may impact net income and economic value.

Key learning objectives:

  • Define IRRBB

  • Understand the forms of interest rate risk

  • Gain an understanding of the Interest Rate Gap Report

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