As interest rates surge, bankers fret over last year’s models

IRRBB modellers trying to predict client behaviour have little relevant data to fall back on

The world today feels unrecognisable from the one we were living in at the start of the year. At the time, interest rates were still at a 10-year low, and there were hopes that developed economies would emerge stronger in the aftermath of the Covid crisis.

Fast-forward 10 months, and economies are in decline, base rates are shooting up, and the managers who measure interest rate risk in banks’ loan and deposit books doubt whether their models can reliably forecast customer behaviour.

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