DNB launches study on interest rate risks in the bank book

Date 28 February 2013

DNB is looking at how banks deal with interest rate risks in the bank book. Specialist investigator Hildegard Montsma explains how in our regular ‘Behind the scenes’ feature.

Hildegard Montsma

Does DNB see interest rate risks as a real danger for banks?
‘DNB is concerned about the consequences that an interest rate hike or, conversely, a long period of low interest rates could have on the banks. The study we are about to launch aims to establish whether the banks have taken adequate steps to measure and manage these interest rate risks.


We also want to know what impact sudden interest rate hikes or a lengthy period of low rates could have on the banks. The question we will ask is whether the capital buffer of banks is large enough to accommodate their risk profile. We will then use the results of the study to consider whether their interest rate risk policies need adjusting.’
What is the focus of the study on interest rate risks?
‘DNB is looking at stress scenarios across the entire financial sector, that is for insurers and pension funds as well as banks. As regards the banks, we will initially focus on gaining a more accurate picture of the sector. Existing reports do not provide enough information on the risks banks are running. We expect the banks to have properly embedded and robust models for measuring and managing interest rate risks. The EBA is also expected to issue a new directive on interest rate risks, and the Basel Committee is considering whether interest rate risks in the bank book can be partially brought under pillar I. Interest rate risks currently fall under pillar II, and the relevant rules are less well-defined.’
'The aim of this study is to gain a better understanding of the risk model for all the banks. We’ll also look at their existing policy and how they manage risks. This will then be translated into a capital requirement for banks, since the ultimate goal of the study is to ensure that Dutch banks have adequate capital buffers in place. The results of the study will be used to evaluate the existing policy rule for interest rate risks, partly using the EBA guidelines.’
How long have you been working at DNB and what do you find most interesting about your job?
‘I’ve been with DNB since 2007, initially in active supervision. In 2009, I joined the Supervision Policy department, where I work on financial risk management for banks. My current job allows me to combine active supervision with policy studies. In my international contacts, I’ve noticed that DNB is leading the field in this. My dual role enables me to combine policy and active supervision. My colleagues and I are therefore the linchpin between the two. That makes my work interesting, since it’s very wide-ranging.’ 


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