Market risk

Interest rate risk

Interest rate risk is the current or prospective risk that adverse movements in interest rates will affect the Bank's capital or revenues.

The CEB is exposed to interest rate risk in the normal course of its activity because of potential differences in the interest rate characteristics of assets and liabilities.

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 hedging derivatives which convert assets and liabilities into euro-denominated floating-rate instruments.

The CEB measures interest rate risk following Basel/EU regulations, by limiting the impact of interest rate shocks on the economic value of equity and revenues.

Foreign exchange risk

Foreign exchange risk is the risk of potential losses resulting from adverse movements in exchange rates.

The CEB does not take foreign exchange positions and systematically hedges foreign exchange risk using derivative instruments.

The CEB has residual foreign exchange exposure arising from carrying interests in currencies other than the euro. This risk is monitored and hedged monthly. It is limited to the equivalent of €1 million per currency at the end of each month.