Market Risk

Market risk is the risk of loss due to adverse movements in financial markets, such as interest rate or foreign exchange markets.

Interest Rate Risk

Interest rate risk is the current or prospective risk to the Bank’s capital and earnings from adverse movements in interest rates.

In the normal course of business, the CEB is exposed to various sources of interest rate risk, such as gap risk - which arises from mismatches in the dates on which financial instrument rates are reset -, basis risk and option risk.

The Bank takes a prudent approach to managing interest rate risk to preserve its financial stability and protect its income and capital. It manages interest rate risk throughout the balance sheet by using micro-hedging or macro-hedging derivatives, converting assets and liabilities into euro-denominated floating rate instruments. The CEB manages the structural interest rate risk on equity, which is not interest-rate sensitive, by adopting a convention for the interest rate repricing profile and duration of equity. This convention is regularly reviewed in light of CEB’s risk appetite and financial market trends. 

The Bank measures interest rate risk in accordance with Basel/EU regulations and European Banking Authority (EBA) standards. It defines its risk appetite based on the metric measuring the interest rate sensitivity of the economic value of equity. The CEB also monitors the interest rate sensitivity of the interest margin.

Foreign Exchange Risk

Foreign exchange risk is defined as the potential loss of on- and off- balance-sheet positions resulting from adverse movements in exchange rates.

The CEB does not take any foreign exchange position and systematically hedges assets and liabilities in euros, using derivative instruments. The residual risk arising from carrying interests in currencies other than the euro is monitored and hedged monthly. The net open position is limited to the equivalent of €1 million per currency at the end of each month.

Related publications
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    CEB Risk Management Disclosure Report 2022
    Solid risk measures are key for the CEB’s financial strength and its social mission. This second CEB Risk Management Disclosure Report brings you up to date with the Bank’s approach to managing risk and assessing its capital adequacy. Published: July 2023 Read