IRRBB 📉 Explained simply. How interest rates impact banks. #IRRBB #Banking #finance
8 April 2026·1 min
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What is Interest Rate Risk in the Banking Book (IRRBB) and why does it matter so much for banks today?
In this Industry Portal video, we break down IRRBB in simple, practical terms using real world examples, regulatory context, and balance sheet insights. This is one of the most important risks in banking, directly impacting capital, profitability, and long term stability.
You will learn the four key types of IRRBB risk including gap risk, basis risk, option risk, and credit spread risk in the banking book. We explain how changes in interest rates affect both earnings and economic value, and why even well capitalised banks can face significant pressure when rates move quickly.
The video also covers how IRRBB is measured in practice using Earnings at Risk and Economic Value of Equity, alongside stress testing and behavioural modelling. You will understand why assumptions on deposits, prepayments, and customer behaviour are critical in determining true risk exposure.
We explore global regulatory expectations from the Basel Committee on Banking Supervision, the European Banking Authority, and the Prudential Regulation Authority, and how these frameworks shape how banks manage IRRBB today.
Governance is a key focus, including the role of ALCO, Treasury, Risk, and the Three Lines of Defence in ensuring effective oversight. We also cover practical risk management tools such as interest rate swaps, balance sheet structuring, and funds transfer pricing.
By the end of this video, you will understand not just what IRRBB is, but how it actually plays out across the balance sheet and how banks protect themselves against interest rate shocks.
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#IRRBB #Banking #InterestRateRisk #Treasury #RiskManagement #BaselIII #FinanceExplained #ALCO #BankingRisk
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