Guidance

1. This Chapter relates to interest rate risk in the Non-Trading Book. In relation to the Trading Book, an Interest Rate Risk Capital Requirement is imposed as a component of the Market Risk Capital Requirement under Chapter 5.
2. Non-Trading Book interest rate risk is normally a major source of risk for a bank or a firm that deals on its own account (including Underwriting on a firm commitment basis) and whose Non-Trading Book assets equal or exceed 15% of its total assets. Interest rate risk in the Non-Trading Book may arise from a number of possible sources, such as:
a. risks related to the 'mismatch' of repricing of assets and liabilities and off balance sheet short and long-term positions;
b. risks arising from hedging Exposure to one interest rate with Exposure to a rate which reprices under slightly different conditions;
c. risks related to the uncertainties of occurrence of transactions, for example, when expected future transactions do not equal the actual transactions; and
d. risks arising from consumers redeeming fixed rate products when market rates change.