“Regulatory consultant Mayra Rodríguez Valladares argues that bank risk managers need to “go back to basics” and do an assessment known as a “gap analysis”, in which liabilities and assets are grouped by their duration to see at what point in time the bank will start having more liabilities than it can easily meet. From there, the next step is to forecast what will happen if rates continue to move, she says.
Traditionally, such tests looked at 25- or 50-basis-point interest rate moves, but “right now, they should be doing [asking] what if rates go up by 100 basis points or 200 basis points in a short period of time,” she says.
Bank risk managers would also do well to study other periods with high or rapidly rising rates, such as the 1980s, to make sure they are covering the right bases, says Rodríguez Valladares. As she puts it: “Before anybody goes into a risk management position, they should be required to take a history class.” Read more here