Title: NET INTEREST INCOME (NII), NET INTEREST MARGIN (NIM) AND THE MANAGEMENT OF INTEREST‐RATE RISK IN THE BANKING BOOK
Abstract: This chapter considers behaviour and characteristics of net interest income (NII) and net interest margin (NIM), before moving on to key principles of interest-rate risk in the banking book management. Excessive interest-rate risk can pose a significant threat to a bank's current capital base and/or future earnings if not properly managed. There are a number of different types of interest-rate risk faced by banks in their banking books: gap risk, basis risk and option risk. A static interest-rate gap report is used as a basis to assess gap risk, whether it is in relation to the effect of interest-rate movements on income (NII sensitivity) or economic value. Simulation models, adopted by some banks, can be used to assess either NII or economic value sensitivities. The chapter argues that a commercial bank seeking to run an interest-rate neutral position will aim to minimise the size of both the gaps in each repricing bucket, as well as the overall cumulative gap.
Publication Year: 2018
Publication Date: 2018-02-22
Language: en
Type: other
Indexed In: ['crossref']
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Cited By Count: 2
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