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Article
The Hedge Reborn - Rethinking Interest Rate Risk in Volatile Markets
Rapid rate hikes have reignited focus on interest rate risk in the banking book. Banks are rebuilding hedging frameworks, adopting dynamic swaps and options, and revisiting behavioral models to manage deposit volatility. Regulators demand granular IRRBB stress testing, while treasury teams balance accounting stability with capital efficiency. Smart, adaptive hedging is once again a core strategic defense.
Nov 18, 2025
Center for Financial Professionals ,
Tags:
ALM, Treasury and Liquidity Risk
The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization
Interest rate risk has re-emerged as a critical treasury challenge
Basel IRRBB standards push banks to model earnings and equity sensitivity
Rate shocks expose flaws in behavioral and depositor models
Hedging strategies shift to dynamic swaps, options, and structured overlays
Hedge accounting regains popularity to stabilize earnings volatility
Regulators demand granular stress testing and scenario diversity
AI tools enhance forecasting of deposit and prepayment behavior
Treasury now treats IRRBB as a strategic competitive lever
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