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What can banks do to address the challenges posed by rising interest rates?

Markets have been confronted with a sharp increase in interest rates over the last months, resulting in a material change in level and steepness of the yield curve. Today’s interest rates are positive, the yield curve relatively flat and, in some currencies, even (slightly) inverse. The rise in interest rates poses a significant challenge for banks. This challenge involves managing the impact that rising rates have on the bank’s IRRBB key risk metrics as well as new EBA regulation related to supervisory outlier tests (SOTs) for IRRBB.

The EBA expects banks to expand their CSRBB framework

On 2 December 2021, the European Banking Authority (EBA) published three consultation papers related to its ‘Guidelines on the management of interest rate risk arising from non-trading book activities’ (in short, the IRRBB Guidelines). In this article, we focus on one of these consultation papers, concerning the update of the IRRBB Guidelines.

The EBA faces banks with a new supervisory outlier test on net interest income

On 2 December 2021, the European Banking Authority (EBA) published three consultation papers related to its ‘Guidelines on the management of interest rate risk arising from non-trading book activities’ (in short, the IRRBB Guidelines). In this article, we focus on one of these consultation papers, which concerns updates to the supervisory outlier test (SOT) for the Economic Value of Equity (EVE) and the introduction of an SOT for Net Interest Income (NII).

Getting a firmer grip on funding ratios

Improved portfolio construction gives pension funds greater control

The economic crisis has left its mark on pension funds. The double blow of the share market slump and the fall in long-term interest rates has severely strained their funding ratios, i.e. the ratio of their assets to their liabilities.

Many have dipped below the 105% minimum prescribed by the Dutch Central Bank, DNB. By improving the constructions of their portfolios, pension funds can obtain greater control over their funding ratios, says Zanders consultant Sjoerd Blijlevens.

Structural risk management

In pension funds

The financial position of pension funds is under pressure. Tougher rules, low cover ratios and a heightened risk perception oblige pension funds to identify their financial risks properly.

Gerbert van Grootheest, associate director at Zanders, shows how pension funds can structurally employ risk management and explains how Zanders can help.