| Interest rate risk arising from non-trading book activities | The current or prospective risk to both the earnings and the economic value of an institution arising from adverse movements in interest rates that affect interest rate sensitive instruments, including gap risk, basis risk and option risk. |
| Interest rate sensitive instruments | Assets, liabilities and off-balance-sheet items in the non-trading book, excluding assets deducted from CET1 capital, e.g. real estate or intangible assets or equity exposures in the non-trading book. |
| Gap risk | Risk resulting from the term structure of interest rate sensitive instruments that arises from differences in the timing of their rate changes, covering changes to the term structure of interest rates occurring consistently across the yield curve (parallel risk) or differentially by period (non-parallel risk). |
| Basis risk | Risk arising from the impact of relative changes in interest rates on interest rate sensitive instruments that have similar tenors but are priced using different interest rate indices. Basis risk arises from the imperfect correlation in the adjustment of the rates earned and paid on different interest rate sensitive instruments with otherwise similar rate change characteristics. |
| Option risk | Risk arising from options (embedded and explicit), where the institution or its customer can alter the level and timing of their cash flows, namely the risk arising from interest rate sensitive instruments where the holder will almost certainly exercise the option if it is in their financial interest to do so (embedded or explicit automatic options) and the risk arising from flexibility embedded implicitly or within the terms of interest rate sensitive instruments, such that changes in interest rates may affect a change in the behaviour of the client (embedded behavioural option risk). |
| Credit spread risk from non-trading book activities (CSRBB) | The risk driven by changes in the market perception about the price of credit risk, liquidity premium and potentially other components of credit-risky instruments inducing fluctuations in the price of credit risk, liquidity premium and other potential components, which is not explained by IRRBB or by expected credit/(jump-to-)default risk. |
| Earnings measures | Measures of changes in expected future profitability within a given time horizon resulting from interest rate movements. |
| Economic value (EV) measures | Measures of changes in the net present value of the interest rate sensitive instruments over their remaining life resulting from interest rate movements. EV measures reflect changes in value over the remaining life of the interest rate sensitive instruments, i.e. until all positions have run off. |
| Economic value of equity (EVE) measures | A specific form of EV measure where equity is excluded from the cash flows. |
| Conditional cash flow modelling | Cash flow modelling under the assumption that the timing and amount of cash flows is dependent on the specific interest rate scenario. |
| Unconditional cash flow modelling | Cash flow modelling under the assumption that the timing and amount of cash flows is independent of the specific interest rate scenario. |
| Run-off balance sheet | A balance sheet where existing non-trading book positions amortise and are not replaced by any new business. |
| Dynamic balance sheet | A balance sheet incorporating future business expectations, adjusted for the relevant scenario in a consistent manner. |
| Constant balance sheet | A balance sheet including off-balance-sheet items in which the total size and composition are maintained by replacing maturing or repricing cash flows with new cash flows that have identical features with regard to the amount, repricing period and spread components. |