Interest rate risk refers to the possibility that uncertainty in changes in market interest rates will cause losses to commercial banks.

In the "Interest Rate Risk Management Principles" issued by the Basel Committee in 1997, interest rate risk was defined as: changes in interest rates cause a deviation between a commercial bank's actual income and expected income or actual costs and expected costs, causing it to The actual income is lower than the expected income, or the actual cost is higher than the expected cost, resulting in the possibility of losses for commercial banks.

Refers to the risk that financial instruments originally invested in fixed interest rates may cause their prices to fall when market interest rates rise.

Extended information:

Influencing factors of interest rate risk:

1. Macroeconomic environment

When economic development is in the growth stage, As investment opportunities increase, the demand for loanable funds increases, and interest rates rise. On the contrary, when economic development is sluggish and society is in a period of depression, investment willingness decreases, naturally the demand for loanable funds decreases, and market interest rates are generally lower. .

2. Central Bank’s Policy

Generally speaking, when the central bank expands the money supply, the total supply of loanable funds will increase, supply will exceed demand, and the natural interest rate will decrease accordingly. ; On the contrary, if the central bank implements a tightening monetary policy to reduce the money supply, the supply of loanable funds will exceed the demand, and interest rates will rise accordingly.

In the stock and bond markets, if the securities market is in a rising period, market interest rates will rise; conversely, interest rates will also decrease relatively speaking.

3. International economic situation

Changes in a country’s economic parameters, especially changes in exchange rates and interest rates, will also affect the fluctuations in interest rates in other countries. Naturally, the rise and fall of the international securities market will also create risks for the interest rates faced by international banking business.

The funding gap is a concept related to the length of time. The size and sign of the gap value depend on the length of the plan period, because the interest rate adjustment period of the asset or liability determines whether the interest rate adjustment is related to the interest rate during the plan period.

In addition to the funding gap indicators mentioned above, the interest rate sensitivity ratio (InterestRateSensitiveRatio) can also be used to measure the bank's interest rate risk. Bank operating managers are gradually adopting dynamic gap methods for interest rate sensitive assets and interest rate sensitive liabilities. One of the methods is "duration gap analysis."

Baidu Encyclopedia—Interest Rate Risk