The differences between Interest Rate Risk (IRR) in the banking and trading book
28 November 2016
There is often confusion about the different nature of the interest rate risk in the banking book versus the trading book and what needs to be measured. However, before we go into the differences, let’s reflect on the main differences between the trading and banking book
The trading book refers to assets held by a bank that are available for sale and hence
regularly traded. The trading book is required under Basel II and III to be marked to
market on a daily basis. The value-at-risk for assets in the trading book is measured
on a 10-day time horizon under Basel II.