Moody's Talks - Focus on Finance
Rising rates create risks for banks globally, universal banks have sound funding and liquidity
Nov 1, 2023
Moody's analysts discuss managing risks from rising interest rates, funding and liquidity of universal banks, interest rate risk in banking book, characteristics of universal banks, market funding risks for universal banks, and the true liquidity position of banks.
15:50
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Quick takeaways
- Interest rate risk in banking books can reduce margins for banks and is influenced by regulations and risk capital.
- Universal banks have sound funding and liquidity, reducing refinancing risk through diversity of funding sources and flexibility in debt management.
Deep dives
Managing Interest Rate Risk and its Impact on Banks
Interest rate risk in the banking book refers to the risk of a decline in a bank's earnings resulting from sharp movements in interest rates on its assets and liabilities. When interest rates rise, banks earn more on assets like loans and bonds, but they also pay more on liabilities like customer deposits. Mismatches in the timing of these interest rate changes can lead to reduced margins for banks. Housing loans and fixed rate mortgages can increase a bank's exposure to interest rate risk, while regulations and risk capital can affect the level of risk different banks face.
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