Interest Rate Risk in Banking and Investment Books Training Course

Introduction

This intensive 5-day training course provides a comprehensive and practical exploration of interest rate risk (IRR) specifically tailored for professionals managing banking and investment books. In a financial landscape characterized by fluctuating interest rates and evolving monetary policies, understanding and effectively managing IRR is paramount for maintaining profitability, solvency, and regulatory compliance. This program will equip participants with cutting-edge methodologies to identify, measure, monitor, and control IRR across diverse financial instruments and balance sheet structures, enabling them to make informed strategic decisions and optimize financial performance in varying interest rate environments.

The course goes beyond theoretical concepts, focusing on real-world applications, quantitative techniques, and the latest regulatory developments impacting IRR management. Through interactive case studies, hands-on exercises, and discussions of current market trends and supervisory expectations, attendees will learn to analyze gap reports, conduct sensitivity analysis, perform earnings-at-risk (EaR) and economic value of equity (EVE) calculations, and implement robust hedging strategies. Whether you are a treasury manager, ALM professional, risk analyst, or investment portfolio manager, this program offers an unparalleled opportunity to master the essential skills for navigating interest rate volatility and enhancing the resilience of your institution's financial positions.

Duration: 5 days

Target Audience:

  • Asset-Liability Management (ALM) Professionals
  • Treasury Managers and Staff
  • Market Risk Analysts
  • Investment Portfolio Managers
  • Financial Controllers
  • Risk Management Professionals
  • Bank Regulators and Supervisors
  • Auditors dealing with financial institutions

Objectives:

  • To provide a comprehensive understanding of interest rate risk concepts and its sources in banking and investment books.
  • To equip participants with the skills to measure and monitor various types of interest rate risk.
  • To understand the impact of interest rate changes on net interest income (NII) and economic value.
  • To develop proficiency in designing and implementing robust IRR management frameworks and strategies.
  • To explore regulatory expectations and best practices in IRR reporting and governance.

Course Modules:

Introduction

  • Defining Interest Rate Risk (IRR) and its significance in banking and investment.
  • Sources of IRR: repricing risk, yield curve risk, basis risk, optionality risk.
  • Historical examples of IRR causing significant financial distress.
  • Regulatory focus on IRR management (e.g., Basel, IRRBB).
  • Overview of the course structure and key learning objectives.

Measurement of Interest Rate Risk - I (Earnings Perspective)

  • Gap Analysis: concept, construction of repricing gaps, and limitations.
  • Net Interest Income (NII) sensitivity analysis.
  • Earnings-at-Risk (EaR) / Net Interest Income at Risk (NII-at-Risk) methodology.
  • Simulating the impact of interest rate changes on NII under various scenarios.
  • Behavioral modeling of non-maturing deposits and other balance sheet items.

Measurement of Interest Rate Risk - II (Economic Value Perspective)

  • Economic Value of Equity (EVE) / Present Value of Equity (PVE) concept.
  • Duration analysis for banking and investment books.
  • Convexity and its importance in IRR management.
  • Impact of yield curve shifts and twists on economic value.
  • Stress testing EVE under severe interest rate scenarios.

IRR in the Banking Book (IRRBB)

  • Specific characteristics of IRR in the banking book vs. trading book.
  • Focus on non-maturing deposits, fixed-rate loans, and core funding.
  • Behavioral modelling of customer options (e.g., loan prepayments, deposit stability).
  • Funds transfer pricing (FTP) and its role in managing IRRBB.
  • Regulatory principles for IRRBB management (e.g., Basel III IRRBB standards).

IRR in the Investment Book

  • IRR management for fixed income portfolios (bonds, mortgage-backed securities).
  • Impact of interest rate changes on bond prices and portfolio duration.
  • Hedging strategies for investment portfolios using interest rate derivatives.
  • Managing IRR for structured notes and complex fixed income instruments.
  • Diversification and asset allocation strategies to mitigate IRR.

Interest Rate Derivatives for Hedging

  • Interest Rate Swaps (IRS): plain vanilla, basis swaps, amortizing/accreting swaps.
  • Interest Rate Futures and Options: hedging strategies for bonds and loans.
  • Caps, Floors, and Collars: understanding their application in hedging.
  • Swaptions and their use in managing optionality risk.
  • Practical considerations for implementing derivative hedging programs.

Stress Testing and Scenario Analysis for IRR

  • Designing interest rate stress scenarios (parallel shifts, twists, steepeners, flatteners).
  • Incorporating historical and hypothetical scenarios.
  • Reverse stress testing for IRR: identifying catastrophic rate movements.
  • Integration of IRR stress tests with liquidity and credit risk stress tests.
  • Regulatory expectations for IRR stress testing.

Governance, Reporting, and Best Practices

  • Establishing a robust IRR management framework and policy.
  • Roles and responsibilities of the ALCO (Asset-Liability Committee) and risk functions.
  • Internal reporting requirements for IRR (e.g., gap reports, EaR, EVE reports).
  • Model validation for IRR models (behavioral, valuation, stress testing models).
  • Current trends in IRR management and emerging risks.

CERTIFICATION

  • Upon successful completion of this training, participants will be issued with Macskills Training and Development Institute Certificate

TRAINING VENUE

  • Training will be held at Macskills Training Centre. We also tailor make the training upon request at different locations across the world.

AIRPORT PICK UP AND ACCOMMODATION

  • Airport pick up and accommodation is arranged upon request

TERMS OF PAYMENT

Payment should be made to Macskills Development Institute bank account before the start of the training and receipts sent to info@macskillsdevelopment.com

Interest Rate Risk In Banking And Investment Books Training Course in San Marino
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