EU banks fear tumbling rates will upset their IRRBB balance
As rates decline, hedging two separate tests of vulnerability becomes more difficult
In the European Union, banks are being forced into a tightrope walk between two tests of interest rate risk – a feat that is proving even harder to achieve in the current falling rates environment.
The tests measure banks’ vulnerabilities to the risks inherent in sudden shifts in interest rates to their traditional deposit-taking and lending businesses. Banks breaching certain set thresholds are
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