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Published: 13th February 2010 by William Webster
Earnings at risk (EAR) is a risk management tool that's used by banks and mutual firms to manage the risks associated with Net Interest Income, (NII). It's used more by management than dealers for reasons that may become apparent.
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6th May 2020
For many banks and building societies Net Interest Income (NII) is a substantial part of “earnings”. Earnings allow us to add to capital, pay dividends and grow the business. Given its importance should NII be targeted by the Board?
14th October 2009
Gap reports show you the interest rate risk you are running in your balance sheet. They put the assets and liabilities into time buckets in accordance with their interest rate repricing. From this simple approach you can obtain a table or graph of the risk being run. This normally includes a profit and loss figure that results from moving the yield curve. Gap limits are also applied in order to keep the interest rate exposure within risk tolerence. Gap reports aren't new; they are widely used and have both strengths and weaknesses. Let's find out more.
23rd January 2010
In a world where regulators are focusing on liquidity and capital it's easy to overlook market risk. In many firms this means interest rate exposure. In the UK with Bank Rate at an all time low it's tempting to think that hedging fixed rate assets is just a waste of money. After all why pay 3.25% on a 5 year swap when 3 month Libor is only 51 basis points? Surely matching the interest basis on assets and liabilities ends up costing you 274 bps doesn't it?