Filling the gaps in Basel’s interest rate risk measures

Reverse stress-testing or VAR may work better than existing outlier tests, but are hard to manage

The crisis in the US regional banking sector in March this year highlighted the value of a key test devised by global regulators to identify banks whose loan and deposit books are most at risk from a rise or fall in interest rates. European banks and regulators congratulated themselves on having avoided the crisis by regulating the risk appropriately. But now, some experts are suggesting the supervisory test could overlook a material risk of loss at banks with more complex or unusual banking