Interest rate risk in the banking book: strategic considerations for IRRBB holistic risk management

Interest rate risk remains a critical consideration for banks today, more so than ever, owing to uncharted market conditions globally. Understanding the history, principles and the current landscape of the interest rate risk in the banking book (IRRBB) standard is essential for comprehensive risk management.  

A key component of the IRRBB regulation depends on the bank’s models, which are subject to regulatory approval. Legacy systems often struggle to meet the latest technical requirements imposed by regulatory mandates, such as dynamic balance sheets, behavioural modelling and the integration of balance sheet projections with prescribed interest rate scenarios. Mature tech-driven platforms that enable integrated dynamic analytics for multiple risk types are immediately beneficial for IRRBB. Additionally, prescriptive analytics using advanced quantitative optimisation techniques can provide invaluable decision-making support within financial institutions.