Interest Rate Risk (IRR)
Definition
The supervisory terminology used in the United States for the risk to a bank's earnings, capital, and economic value arising from adverse movements in interest rates. Conceptually equivalent to Interest Rate Risk in the Banking Book (IRRBB) under the Basel framework, but applied through a different regulatory architecture.
What This Actually Means
The US name for what the rest of the world calls IRRBB.
Same risk — rates move and squeeze your earnings, your capital and the economic value of the book — but the US regulates it differently. Where Basel hands you a rulebook (prescribed shocks, a supervisory outlier test, behavioural caps, disclosure templates), the US runs on principles: manage the risk in a way that fits your size and complexity, and let the examiner judge whether you have.
Where It Matters
Scope: US IRR guidance covers non-trading positions across interest rate-sensitive assets and liabilities. Trading-book positions are handled separately under the market risk capital rules, and the US treats IRR as part of broader market risk management rather than as a distinct architectural pillar.
Relationship to IRRBB: Basel (BCBS d368, 2016) prescribes a standardised measurement methodology — six supervisory shock scenarios, supervisory outlier test thresholds, parameterised behavioural assumptions, and Pillar 3 disclosure templates. The US framework is principles-based: banks run an IRR management process appropriate to their size and complexity, with methodology, scenarios and assumptions set at institution level and tested through supervisory examination rather than standardised reporting.
The difference reflects a different regulatory tradition. US supervision is built on safety-and-soundness review under Section 39 of the Federal Deposit Insurance Act, which requires each institution to manage interest rate risk in a way appropriate to its size and complexity and gives supervisors broad powers to act on deficiencies. Because that machinery already addressed interest rate risk before BCBS d368 was published, the US authorities take the view that the substance of the Basel standard is already met through existing guidance — so the specific d368 elements (standardised shocks, SOT thresholds, behavioural caps, disclosure templates) have not been separately transposed.
Implementation status: the Basel Committee's RCAP records the US as having implemented BCBS d368 on the basis of pre-existing supervisory guidance — the 1996 Joint Agency Policy Statement on Interest-Rate Risk and the 2010 Interagency Advisory on Interest Rate Risk — rather than through transposition of the specific d368 rule set.
Foundational US guidance: the Joint Agency Policy Statement on Interest-Rate Risk (1996); SR 10-1, the 2010 Interagency Advisory on Interest Rate Risk Management; the OCC Comptroller's Handbook on Interest Rate Risk; and the FFIEC examination procedures.