Bank balancing: optimising margin and capital in a higher-rate environment

Volatility, higher interest rates and regulatory change are placing new pressures on banks’ profitability and competitiveness.

In today’s environment, banks have increased opportunities to grow income on one side of the balance sheet, but funding costs on trading and investments also rise, and with it comes greater uncertainty of the impact on portfolios, creditors and counterparties.

Strategies, systems and models designed for a low or even negative interest era may no longer be appropriate.

This Risk.net paper, featuring leading practitioner insights, assesses the challenges banks are facing in the new higher-for-longer interest rate environment, and the strategies and tools they are using to optimise margin and capital on their derivatives portfolios.

One thing remains clear. Banks will need a firm grip on their key risks, costs and exposures if they are to drive efficiencies and navigate a profitable path.