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Interest Rate Risk. Liquidity risk

Category: Corporate Governance

Interest rate risk is the risk of loss resulting from changes in interest rates. It is controlled primarily through the limit structure described in above. Exposure to interest rate movements can be expressed for all interest rate sensitive positions, whether marked to market or subject to accrual accounting, as the impact on their fair values of a one basis point (0.01%) change in interest rates. This sensitivity, analyzed by time band, is set out below. Interest rate sensitivity is one of the inputs to the VaR model.

It should be noted that, in management’s view, any representation of interest rate risk at a specific date offers only a snapshot of the risks taken by the Group, since both trading and non-trading positions can vary significantly on a daily basis, because they are actively managed. As such, it may not be representative of the level of risk at other times, either in general or in specific currencies or tenors. Furthermore, the presence in the portfolio of option products means that only limited inferences can be drawn about exposure to larger movements in interest rates. The table sets out the extent to which the Group was exposed to interest rate risk at 31 December 2001 and 2002. It shows the net impact of a one basis point (0.01%) increase in market interest rates across all time bands on the fair values of interest rate sensitive positions, including balance sheet assets and liabilities and derivatives.

The impact of such an increase in interest rates depends on the net asset or net liability position of the Group in each category, currency and time band in the table. A negative amount in the table reflects a potential reduction in fair value as a result of an increase in interest rates, while a positive amount reflects a potential increase in fair value.

Interest rate sensitivity position

CHF thousand

per basis point increase

Within 1


1 to 3


3 to 12


1 to 5


Over 5


CHF Trading (10) 211 (287) (47) (18) (151)
Non-trading (42) (153) (365) (6,504) (5,119) (12,183)
USD Trading (93) (256) (1,021) (2,668) 2,445 (1,593)
Non-trading 26 (82) (72) (927) (230) (1,285)
EUR Trading 114 33 12 (1387) 728 (500)
Non-trading (1) 10 (2) (86) (193) (272)
GBP Trading (78) 200 (227) (453) (269)_ (827)
Non-trading (1) (6) (39) 92 587 633
JPY Trading 21 12 (502) (249) (204) (922)
Non-trading 0 1 0 18 (24) (5)
Others Trading (46) (61) 500 (54) (286) 53
Non-trading 0 0 (4) (1) (3) (8)

Liquidity risk

Liquidity is the ability to have funds available to meet the commitments of the bank. To enable market participants to understand a bank’s liquidity risk exposure, a bank should provide information about its available liquid assets, as well as its sources and uses of funds.

For example, disclosures about short-term assets (e.g., cash and cash equivalents, repurchase agreements and interbank loans) and short-term liabilities (e.g., reverse repurchase agreements) provide basic information about an bank’s liquidity profile.

A cash flow statement shows the sources and uses of funds and provides an indication of an bank’s ability to generate liquid assets internally. Information about concentrations of depositors and other fund providers, maturity information about deposits and other liabilities, and the amount of securitized assets, are useful in assessing an bank’s liquidity.

Descriptive discussion about the diversity of funding options and contingency plans provides additional perspective on the potential impact of liquidity risk to the bank.


As the example of the liquidity risk disclosure below are provided extracts from the 2001 annual report of Deutsche Bank.

As our balance sheet has grown significantly in the recent years, our liquidity management function has become more important. With our finalizing of the funding matrix and the stress testing capabilities we describe below, we have concluded the last steps to establish a fully integrated liquidity risk management framework.

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