BANK 8.1.2 Interest rate risk in the banking book

(1) Interest rate risk in the banking book or IRRBB is the risk to earnings or capital arising from movement of interest rates.
(2) IRRBB arises from changing rate relationships among yield curves that affect bank activities (basis risk), from changing rate relationships across the spectrum of maturities (yield curve risk), and from interest-rate-related options embedded in bank products (option risk).

Examples of sources of IRRBB

•   risks from underwriting on a firm-commitment basis
•   risks related to the mismatch of the re-pricing of assets and liabilities, and off-balance-sheet short-term and long-term positions
•   risks arising from hedging exposure to an interest rate with exposure to another rate that re-prices under different conditions
•   risks related to uncertainties in the occurrence, timing, pricing or value of transactions
•   risk that counterparties will redeem fixed-rate products when market rates change.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).