What Is a Benchmark Risk?

Basis risk is also known as the underlying risk of interest rate pricing, and is another important source of interest rate risk. In the case of inconsistent changes in the benchmark interest rate on which interest income and interest expenditures are based, although the repricing characteristics of assets, liabilities and off-balance sheet businesses are similar, the changes in cash flow and income spreads will also affect the bank's Adverse effects on earnings or intrinsic economic value.

Benchmark risk

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Basis Risk is also known as

For example, a bank might use one year

Interest rate repricing risk: Interest rate risk arising from the mismatch of the interest rate term of assets and liabilities.

Interest rate benchmark risk: Matching maturity of asset and liability interest rates. However, because the benchmark interest rate curve for asset and liability applications is different, changes in the benchmark interest rate curve are not synchronized, resulting in interest rate risk.

Interest rate and yield curve risk: Matching maturities of assets and liabilities, and applying the same benchmark interest rate curve, but the use of different interest rates in the interest rate curve due to different maturity of asset and liability funds, and the interest rate risk that arises when the interest rate curve changes