Interest on excess reserves and Interest rate risk: Difference between pages

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(IOER).  
The risk associated with a change in interest rates.  


The practice of central banks of paying interest on deposits from depository institutions (notably commercial banks) that are in excess of amount of deposits that the bank may be required to hold (together with cash) in view of its liabilities or for other regulatory reasons.


Payment of interest on excess balances means that banks are less likely to lend central bank deposits among themselves (in "interbank" or (US) "federal funds" transactions at rates below the rate paid on excess reserves. Varying the interest rate on excess reserves, then, allows the central bank, then, to influence short-term rates in the economy generally.
This may take several forms in the treasury context.


[[Category:Bank_Lending]]
For example, and depending on the direction of the change:
[[Category:Regulation_and_Law]]
*Increasing interest cost
*Falling interest income
*Changing market value of debt, or of pension liabilities
*Differences in competitiveness
*The changing nature of a market when interest rates change
*Secondary effects, especially potentially adverse effects, resulting from any of the primary effects above. For example, potential breaches of interest cover covenants.
 
 
Sometimes written 'interest-rate risk'.
 
 
== See also ==
* [[Asset-liability management]]
* [[Double-whammy]]
* [[Exposure]]
* [[Fair value interest rate risk]]
* [[Financial covenant]]
* [[Guide to risk management]]
* [[Interest cover]]
* [[Interest rate]]
* [[IRHP]]
* [[IRRBB]]
* [[Matching]]
* [[Pipeline risk]]
* [[Portfolio hedging]]
* [[Risk-free rate of return]]
* [[Shock]]
* [[Time bins]]
 
 
=== Other resources ===
 
[[Media:2015_05_May_-_The_devil_is_in_the_detail.pdf| The devil is in the detail, The Treasurer, 2015]]
 
[[Category:Manage_risks]]

Revision as of 20:15, 5 February 2018

The risk associated with a change in interest rates.


This may take several forms in the treasury context.

For example, and depending on the direction of the change:

  • Increasing interest cost
  • Falling interest income
  • Changing market value of debt, or of pension liabilities
  • Differences in competitiveness
  • The changing nature of a market when interest rates change
  • Secondary effects, especially potentially adverse effects, resulting from any of the primary effects above. For example, potential breaches of interest cover covenants.


Sometimes written 'interest-rate risk'.


See also


Other resources

The devil is in the detail, The Treasurer, 2015

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