Interest Rate Risk in the Banking Book (IRRBB): Evolving challenges and responses by financial institutions

Interest Rate Risk in the Banking Book (IRRBB) has become a critical challenge for financial institutions following the recent collapse of Silicon Valley Bank (SVB), evolving global regulatory requirements such as those from the Basel Committee, European Banking Authority (EBA) and the volatile interest rate environment. Furthermore, the EBA published a heatmap in February 2024, with key focus areas for banks in the European Union. These changes will require proactive risk management strategies and modelling approaches from banks for IRRBB, to not only comply with regulatory requirements, but also gain a competitive advantage.

This paper presents a comprehensive analysis of IRRBB in the aftermath of SVB’s demise and under the EBA regulatory framework emphasising the implications of these changes on bank decision making and risk management practices.

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