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CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management

Under the Basel framework for interest rate risk in the banking book (IRRBB), which pair of measures is used to assess the risk?

Banks assess IRRBB using changes in economic value of equity and in net interest income under prescribed interest rate shock scenarios. Value at Risk is a trading book measure, and liquidity ratios address liquidity risk rather than banking book interest rate risk.

  1. AEconomic value of equity and net interest income perspectivesCorrect
  2. BValue at Risk and expected shortfall of the trading book
  3. CLiquidity coverage ratio and net stable funding ratio
  4. DLeverage ratio and capital conservation buffer

Explanation

IRRBB standards require banks to measure changes in economic value of equity (EVE) and net interest income (NII) under prescribed rate shock scenarios. VaR and ES relate to market risk in the trading book, and LCR/NSFR relate to liquidity.

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