Distinguish repricing, basis, yield curve and optionality risk as sources of interest rate risk in the banking book.
Finance & Banking
Measuring Interest Rate Risk in the Banking Book with EVE and NII Metrics
Learn to calculate EVE and NII sensitivity for interest rate risk in the banking book, model behavioural assumptions and report results to ALCO under prescribed shock scenarios.
🗓️Duration5 training days
📚Content4 modules · 8 sessions
🎓On completionAccredited attendance certificate
About the programme
Course Overview
Interest rate risk in the banking book does not show up as a single number on a trading desk screen; it is spread across repricing mismatches, basis risk between reference rates, and options embedded in mortgages and deposits that customers exercise when it suits them, not the bank. This course builds the two core measurement lenses supervisors and ALCOs rely on: economic value of equity, which reprices the entire balance sheet under prescribed parallel and non-parallel rate shocks, and net interest income sensitivity, which projects earnings impact over a rolling horizon. Participants build a repricing gap schedule from balance sheet data, apply standard shock scenarios to calculate EVE change, and construct an NII simulation that incorporates new business assumptions rather than a static balance sheet alone. Behavioural modelling receives dedicated attention, since assumptions about non-maturity deposit stability and loan prepayment speeds often drive results more than the rate shock itself. The final module covers setting limits, applying the standardised outlier test, distinguishing credit spread risk in the banking book from general interest rate risk, and preparing the ALCO and supervisory reporting that turns these metrics into balance sheet decisions.
Expected Learning Outcomes
Build a repricing gap schedule that allocates balance sheet items to appropriate time buckets.
Calculate economic value of equity sensitivity under prescribed parallel and non-parallel rate shock scenarios.
Model behavioural assumptions for non-maturity deposits and prepayments that drive EVE and NII results.
Build a net interest income sensitivity model over a rolling horizon under multiple rate scenarios.
Reconcile and explain divergence between EVE and NII results to non-technical stakeholders.
Prepare IRRBB reporting for ALCO and supervisors, including limit utilisation and the standardised outlier test.
Who Should Attend
ALM and treasury analysts responsible for measuring and reporting interest rate risk in the banking book.
Bank risk management staff building or validating IRRBB models.
ALCO members who need to interpret EVE and NII results to make balance sheet decisions.
Model validation and internal audit staff reviewing IRRBB methodology and assumptions.
Regulatory reporting teams preparing IRRBB disclosures for supervisors.
Finance professionals moving into balance sheet risk management roles within banks.
Course Modules
Select any module to see its sessions and points.
01Foundations of Interest Rate Risk in the Banking Book
2 sessions · 8 points
Session 1Sources of IRRBB: Repricing, Basis, Curve and Optionality Risk
- Distinguish repricing risk, basis risk, yield curve risk and optionality risk as separate sources of IRRBB.
- Identify assets, liabilities and off-balance-sheet items that expose the bank to each risk source.
- Assess how administered rate products create basis risk against wholesale-indexed exposures.
- Map embedded optionality, such as prepayment and early redemption features, across the balance sheet.
Session 2Building the Repricing Gap Schedule
- Allocate each balance sheet item into repricing time buckets based on contractual or behavioural repricing dates.
- Calculate the repricing gap for each time bucket and identify the bank's net exposure by tenor.
- Distinguish static gap analysis from dynamic approaches that incorporate new business assumptions.
- Reconcile the repricing gap schedule against the general ledger to confirm complete balance sheet coverage.
02Economic Value of Equity Measurement
2 sessions · 8 points
Session 1Calculating EVE Under Prescribed Interest Rate Shock Scenarios
- Apply the prescribed parallel, steepener, flattener and short-rate shock scenarios to the banking book.
- Calculate the change in economic value of equity under each scenario using discounted cash flow revaluation.
- Identify which balance sheet segments contribute most to EVE sensitivity under each shock.
- Compare EVE outcomes across scenarios to identify the single worst-case scenario for capital adequacy purposes.
Session 2Modelling Behavioural Assumptions That Drive EVE Sensitivity
- Model the behavioural repricing profile of non-maturity deposits based on historical stability analysis.
- Estimate prepayment speeds for mortgage and consumer loan portfolios under different rate environments.
- Assess how changes in behavioural assumptions shift EVE results compared with a purely contractual model.
- Document behavioural assumption methodology for governance and supervisory review purposes.
03Net Interest Income Sensitivity Measurement
2 sessions · 8 points
Session 1Building the NII Sensitivity Model Over a Rolling Horizon
- Project net interest income over a rolling horizon under a constant balance sheet assumption.
- Incorporate new business volumes and pricing assumptions into a dynamic NII simulation.
- Apply the same prescribed rate shock scenarios used for EVE to the NII sensitivity model.
- Identify the time horizon at which NII sensitivity results are most exposed to modelling assumptions.
Session 2Reconciling EVE and NII Results and Explaining Divergence
- Reconcile differences between EVE and NII results arising from their different time horizons and assumptions.
- Explain why a scenario can improve near-term NII while worsening long-term economic value of equity.
- Present combined EVE and NII results in a way that gives a complete picture of interest rate exposure.
- Identify hedging strategies that address NII volatility without creating unacceptable EVE sensitivity.
04Governance, Limits and Regulatory Reporting
2 sessions · 8 points
Session 1Setting Limits, the Standardised Outlier Test and Spread Risk
- Set board-approved limits for EVE and NII sensitivity linked to capital and earnings capacity.
- Apply the standardised outlier test threshold to assess whether IRRBB exposure requires additional scrutiny.
- Assess credit spread risk in the banking book as a distinct risk from general interest rate movements.
- Calibrate escalation triggers for approaching or breaching internal IRRBB limits.
Session 2Reporting IRRBB Results to ALCO and Supervisors
- Prepare an IRRBB reporting pack for ALCO covering gap analysis, EVE and NII results and limit utilisation.
- Draft the narrative explaining key drivers of change in IRRBB metrics since the prior reporting period.
- Prepare supervisory disclosures consistent with the bank's internal IRRBB measurement methodology.
- Recommend balance sheet or hedging actions to bring outlying exposures back within approved limits.
What the participant receives
4 course modules
A structured syllabus
8 training sessions
across 5 days
32 detailed points
Applied, detailed content
Accredited attendance certificate
On completing the programme
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