Interest rate risk refers to the potential for financial loss due to fluctuations in interest rates that affect the value of investments or the cost of borrowing. This risk can impact both fixed-income securities and loans, as rising interest rates can decrease the market value of existing bonds and increase the cost of variable-rate loans. For financial institutions, interest rate risk can affect net interest margins and overall profitability. Effective management involves strategies such as interest rate swaps, duration matching, diversification of interest rate exposure, and regular monitoring of market conditions to mitigate potential adverse impacts.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       BCBS 158 - Revisions to the Basel II market risk framework
•                 Basel Framework