VoxEU Column

Banks and their interest rate risk sensitivity: A two-tier analysis

Interest rate risks on banks’ balance sheets represent a relevant financial stability concern with a view to the normalisation of monetary policy. This column explores how a parallel shift in the euro area yield curve, or its steepening, might impact banking sector profitability and solvency. Leveraging on two distinct ECB stress-testing frameworks, it finds that banks are overall well equipped to face the interest rate normalisation as it brings a positive profitability outlook with a hardly affected system-wide solvency forecast.