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INTEREST RATE RISK IN THE BANKING BOOK
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Over the past decade the Basel Committee on Banking Supervision (the Basel
Committee) has released a number of consultative documents discussing the
management and supervision of the interest rate risk inherent in a bank’s balance
sheet1. The Committee’s most recent release on this topic forms part of the proposed
New Basel Capital Accord (the New Accord), which comes into effect in 2007, and
details a capital adequacy framework for interest rate risk in the balance sheet as well
as a suggested supervisory methodology2. This article provides an outline of this
framework and discusses the implications for licensed banks, credit unions and
building societies [collectively referred to as Authorised Deposit Taking Instit utions
(ADI's)] operating in Australia. The article describes some of the risk management
practices currently employed by Australian ADI's for managing this risk and considers
APRA’s plans for incorporating interest rate risk into the supervisory capital regime.
Basel Committee on Banking Supervision ( - Personal Name
NONE
Management
English
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