Bank Market Risk Management – Banking & Trading Books

This course covers primarily interest rate risk banking book (IRRBB), and secondarily market risk in the trading books, both of which have been revised substantially and received greater regulatory and economic attention under Basel 3. IRRBB is especially important as it represents the largest source of risk (and reward) to commercial banks after credit risk.  

The programme includes case studies and group exercises. The course assumes only basic mathematical background knowledge. Participants in the course will acquire a good understanding of market risk relevant to their internal management responsibilities’ and / or client related activities.

By the end of the course the participants will have a thorough understanding of the following:

• Trading book versus banking book and Market risk background under the Basel framework – Pillars 1 & 2
• IRRBB sources of risk exposure, including asset / liability re-pricing gaps, basis risk credit spread risk, embedded optionality, non-maturing assets & liabilities
• IRRBB risk measurement metrics & methods – re-pricing gap exposure templates & cash flow time-slotting, earnings at risk (EaR), delta net interest income (ΔNII), delta economic value of equity (ΔEVE)
• Basel 3 Standard Approach for calculating and public disclosure of IRRBB exposures based on interest rate stress scenarios (outlier testing) for amenable, less amenable and non-amenable cash flow banking book retail and wholesale products
• Profit rate risk banking book – the Shariah compliant equivalents’ of IRRBB will be explained
• Asset / liability management (ALM) behavioural modelling applicable to IRRBB for treatment of uncertain cash flow products – such pre-payable loans and non-maturing deposits (NMDs or ‘’CASA’) –covered with examples
• IRRBB as a core component of supplementary capital determination under the Basel Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP) framework
• Bank funds transfer pricing (FTP) as IRRBB risk pricing and cost allocation mechanism for internal profit centres performance and risk adjusted return on capital (RAROC) calcul
• Overview of Basel 3 market risk – fundamental review of trading book (‘FRTB’) – revised framework