Introduces practical approaches for optimizing management and hedging of Interest Rate Risk in the Banking Book (IRRBB) driven by fast evolving regulatory landscape and market expectations. Interest rate risk in the banking book (IRRBB) gained its importance through the regulatory requirements that have been growing and guiding the banking industry for the last couple of years. The importance of IRRBB is shifting for banks, away from ‘just’ a regulatory requirement to having an impact on the overall profitability of a financial institution. Interest Rate Risk in the Banking Book sheds light on the best practices for managing this importance risk category and provides detailed analysis of the hedging strategies, practical examples, and case studies based on the author’s experience. This handbook is rich in practical insights on methodological approach and contents of ALCO report, IRRBB policy, ICAAP, Risk Appetite Statement (RAS) and model documentation. It is intended for the Treasury, Risk and Finance department and is helpful in improving and optimizing their IRRBB framework and strategy. By the end of this IRRBB journey, the reader will be equipped with all the necessary tools to build a proactive and compliant framework within a financial institution. Gain an updated understanding of the evolving regulatory landscape for IRRBB Learn to apply maturity gap analysis, sensitivity analysis, and the hedging strategy in banking contexts • Understand how customer behavior impacts interest rate risk and how to manage the consequences Examine case studies illustrating key IRRBB exposures and their implications Written by London market risk expert Beata Lubinska, Interest Rate Risk in the Banking Book is the authoritative resource on this evolving topic.

� Worked examples illustrating key points � Explanation of complex or obscure terms � Full glossary of terms The titles in this series, all previously published by BPP Training, are now available in entirely updated and reformatted editions. Each offers an international perspective on a particular aspect of risk management. Topics include interest-rate risk, identifying interest-rate exposures, hedging policy, forward rate agreements, structural hedging, and hedging with derivative instruments and interest-rate futures, options and swaps

Inhaltsangabe:Introduction: The importance of a systematic risk identification, measurement and management as a management duty has increased in recent years. After risk management and interest risk management in particular was primarily relevant for banks in the past, it is a crucial competition factor for all enterprises today. Especially since the recent financial crisis treasurers are far more risk conscious and companies are reassessing their financial risk management procedures. The most important parameter for the cost of financing and the return of capital investments is the interest rate. However the interest rate is subject to fluctuations, what constitute the interest rate risk the company is exposed to. With increasing volatile financial markets and global competition CFOs are focusing more and more on an efficient measurement and management of interest rate risk. In this context this academic paper aims to point out the risks of an adverse change in interest rates for a corporate portfolio of interest-bearing positions and show possibilities to measure and manage these risks. The 2nd and 3rd sections set the scene for interest risk management in a corporate treasury of a service enterprise by providing essential knowledge about financial risk management and giving an insight into the characteristics of a service enterprise as well as the responsibilities of a corporate treasury and the factors that influence the treasury risk management approach. In section 4 and 5 respectively follows a process-oriented instruction of how to quantify interest rate risk and how to manage it. Besides the risk measures duration and convexity (4.2), two different approaches to value at risk, the historical simulation (4.3.2) and the variance-covariance-approach (4.3.3), will be examined. The value at risk is a measure to quantify risk that allows to express the risk exposure with a single absolute figure. For the management of the interest rate risk an overview of possible hedging instruments to reduce interest risk exposure will be given and their different strategies examined (5.1). All approaches will be measured against their practical feasibility and for both, the quantification and the management of interest rate risk, implications for the implementation in a service enterprise will be provided (4.5; 5.2). This will also be illustrated in a case study in section six. The conclusion serves for a critical reflection of all methods being [...]

The Interest Risk Management Series is a time-tested learning tool to expand and enhance information and skills about investment principles and strategies that are directly affected by changes in interest rates. As all investors and financial managers know, changes in interest rates by the Federal Reserve (in the United States) and major banks worldwide enhance or hurt investment performance. This series of books is designed to serve as a hands-on learning and training device to help readers and practitioners alike understand, use, and apply a variety of financial instruments and strategies to interest rate risk exposure. Identifying interest rate exposures -- hedging policy -- structural hedging -- hedging with derivative instruments -- interest rate futures, options, & swaps -- duration and immunizing a portfolio.