Interest rate risk is a focus of our supervisory work. In addition, the Single Supervisory Mechanism (SSM (Single Supervisory Mechanism)) has recently announced a deep dive into banks’ practices with regard to loan forbearance. [40] And, in our day-to-day supervision, we challenge banks’ models and their risk management. Finally, macroprudential oversight is needed to monitor risks that go beyond the individual financial institution.
Many banks, but also insurers and pensions funds, are exposed to similar types of risk. If managed well, risks can be diversified in the financial ecosystem, but fire sales and liquidity stress can also have ripple effects throughout the financial system. One important question is where exposure to interest rate risk resides within the financial system.