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Interest rate risk management
What is Interest Rate Risk in the context of bank balance sheet management?
Interest Rate Risk (IRR) is the risk that changes in market interest rates will adversely affect a bank's net interest income (NII) or the economic value of its equity (EVE).
What is the primary objective of interest rate risk management in banks?
To protect net interest income and economic value from rate fluctuations.
What are the two main perspectives used to measure interest rate risk?
The two perspectives are the Earnings Perspective (impact on NII over a short horizon) and the Economic Value Perspective (impact on the net present value of all cash flows, i.e., EVE).
What is the repricing gap in interest rate risk management?
Difference between rate-sensitive assets and liabilities repricing in a period.
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