EU banks need ‘billions’ in hedges to pass new NII test

Declines in net interest income can be hedged, but the markets may struggle to handle the demand

The collapse of Silicon Valley Bank has focused attention on the volatility of banks’ net interest income (NII), and raised questions about why US regulators failed to spot the glaringly negative spread between SVB’s assets and liabilities.

Meanwhile, in the European Union, regulators have designed a supervisory test to identify this sort of risk in loan and deposit books. The bad news, though, is that around half of EU lenders are expected to fail the European Banking Authority’s NII test –

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