Management of Banking and Financial Services, 4th Edition by Pearson

474 n management of banking and financial services

In the global scenario following the nancial crisis of 2007, interest rates in many countries are at very low

levels, with some countries staring at negative interest rates. When interest rates normalize in the future banks in

these countries would face a signicant interest-rate risk.

IRRBB refers to the current or prospective risk to a bank’s capital and to its earnings, arising from the impact

of adverse movements in interest rates on its banking book.

When interest rates change, the present value and timing of future cash ows change. This in turn changes the

underlying value of a ...