Introduction

Paul Newson

Why write a book on interest rate risk in the banking book (IRRBB)? The principal reason is that, surprisingly, there seem few – if any – books devoted to this subject. There are plenty of books on interest rate risk itself, but most tend to consider it from a trading or wholesale market-facing perspective and, as a result, focus principally on the mathematics of quantifying risk, the likelihood of its occurrence and the features of the more complex financial instruments that exist in the wholesale market. Such books are usually written by specialists, for specialists; unfortunately, the non-specialist reader without some background in mathematics will often find them difficult to understand, and in some cases they can serve more to obscure than to enlighten.

There are also, of course, many books on asset and liability management, most of which contain some reference to IRRBB, but their focus is generally on liquidity and capital management. This book therefore seeks to fill a perceived gap. While tackling a somewhat specialist subject matter, the book is also aimed at the non-specialist. Its prime intention is to give the reader an introduction to the basics whilst providing a