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Basis Risk Appetite

For most Boards it matters when your basis risk exceeds that of your peer group because you are an “outlier” and therefore you attract regulatory attention. This means that from a regulatory “peace of mind” perspective keeping the basis risk down can be an important point in the psychology of risk appetite.

But this raises a dilemma, if customers don’t want administered rate products you need to offer them something else and thereby basis risk will start to increase. Read more here:basis risk appetite

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