SUPERVISORY AND MARKET FOCUS ON INTEREST RATE AND LIQUIDITY RISKS IN THE BANKING BOOK
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The EBA NII stress test is to be conducted this year, and discussions about its implications are intensifying. At the same time, with the demise of Silicon Valley Bank (SVB), interest rate and liquidity transformation are increasingly gaining the attention of stock exchanges in the US, the UK and Europe.
We have just experienced what in 2022 was still regarded as a completely unrealistic scenario: a rise in interest rates, unprecedented in terms of level, speed and form, that has taken many credit institutions by surprise. Regardless of the banks’ actual exposure, almost all bank stocks have therefore come under massive pressure over the past days. Terms such as bank bailout and financial crisis are once again being bandied about. Quick solutions are being sought. Tighter regulations are being called for.
- Identification of weaknesses in bank management in times of rising interest rates
- Analytical framework for bank management
- Holistic view of the bank remains essential
Identification of weaknesses in bank management in times of rising interest rates
The aim of this short article is not to analyze the SVB’s situation or to make comparisons with other market participants. Ultimately, interest rate and liquidity risks in banking books must always be reviewed very specifically for each bank. Sweeping statements aimed at entire groups of banks will inevitably lead to false conclusions. Instead, we would like to encourage readers not to underestimate the complexity of the subject. The implications of the recent interest rate rises and further increases to be expected in the near future affect almost all areas of bank management.
