Rate risk


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Rate risk

In banking, the risk that profits may drop or losses occur because a rise in interest rates forces up the cost of funding fixed-rate loans or other fixed-rate assets.

Interest Rate Risk

The risk of loss due to a change in interest rates. Interest rate risk is important to transactions like interest rate swaps. In such a transaction, the party receiving the floating rate will receive a smaller amount should the floating rate decrease. Interest rate risk is also important to bonds; if interest rates rise, the prices of bonds fall. This affects the secondary market for bonds; for example, if one purchases a bond with a 3% interest rate and the prevailing rate rises to 5%, it becomes difficult or impossible to resell the bond at a profit. Finally, interest rate risk is important to project finance. If interest rates rise, funding may not be available for a new loan for a project that has already started.
References in periodicals archive ?
Mounting interest rate risk prompted the Bundesbank to step up its provisions for general risk yet again, adding 1.
The transaction is exposed to an interest rate risk as nearly 22.
The Office of Inspector General recommended adding an S category to the NCUA's CAMEL rating system to more effectively monitor interest rate risk, according to a Nov.
BANKING AND CREDIT NEWS-May 28, 2015-EBA updates interest rate risk guidelines
M2 EQUITYBITES-May 28, 2015-EBA updates interest rate risk guidelines
Types of interest rate risk in the banking book include banks getting a relatively low interest rate on investments such as mortgages, while being under competitive pressure to offer higher rates to depositors.
Global Banking News-March 27, 2015--Moody's says Irish life insurance firms 'least exposed' to interest rate risk
Managing the interest rate risk inherent in this mismatch is critical to bank survival.
The report identified interest rate risk at nsurance companies as "one of a handful of serious vulnerabilities" about which the FSOC must maintain close scrutiny.
When asked to consider their organization's interest rate risk exposure, CFOs' metrics of greatest concern were their levels of statutory capital (63%), followed by their level of statutory earnings (53%).
The European Commission opened a formal investigation procedure under EU state aid rules, on 20 July, into the French Aero 2008' measure, which offers exchange rate risk insurance to companies supplying parts to aircraft manufacturers.
The nation's banks, thrifts, and credit unions must be particularly mindful of interest rate risk, Federal Reserve System Vice Chairman Donald Kohn said in a January 29 speech on interest rate risk management at a symposium sponsored by the Federal Deposit Insurance Corporation.