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Interest Rate Risk In The Banking Book (IRRBB): How BCBS 368 Will Affect ALM

A bank’s tenor mismatch stands as perhaps its most defining feature over other companies. While in itself an important source for a bank’s net interest margin (NIM), riding the yield curve makes banks susceptible to changes in interest rates and their term structure.

Against the backdrop of the regulatory initiatives as well as the episode of low interest rates triggered by the financial crisis, it comes as no surprise that the principles-based approach to IRRBB, was to receive an upgrade.

This white paper examines the key elements of Basil’s updated rules for IRRBB and the effect they will have on a banks’ ALM strategy. It further explores how a well-thought-out tenor mismatch strategy can initially boost net interest income.