Liquidity and interest rate risk of the bank balance sheet: management challenges in changing environments

What it is about

Karen Moreno Donoso, an expert in financial regulation and banking supervision in the Chilean financial market, presented at the Fourth Annual Risk Conference (September 18, 2026) how to manage the liquidity risk and interest rate risk of the bank balance sheet. She clarifies that the opinions are personal and do not represent any institution.

The 24 slides start from an environment of volatility and from the fact that borrowing to lend is an inherently risky model because of maturity transformation. They define liquidity risk, its sources and metrics (LCR, NSFR, run-off rate and survival horizon) and interest rate risk in the banking book (ΔNII and ΔEVE), with the Basel principles. They analyze the case of Silicon Valley Bank, the dynamics of runs with technology and social media, examples of good and bad practices, the SREP assessment and six lessons.

Objectives

• Understand how the liquidity and interest rate risks of the balance sheet relate to each other.
• Review the Basel principles and the metrics to measure them.
• Draw lessons from the Silicon Valley Bank case for management and supervision.

Key takeaways

1. Interest rate risk in the banking book (IRRBB) focuses on when the balance sheet reprices and liquidity risk on when its flows fall due and materialize.
2. At SVB, a maturity mismatch and unhedged interest rate risk led to unrealized losses, a deposit run and a liquidity and solvency crisis: 94% of its deposits were uninsured, securities were 55% of assets and 78% of that portfolio was held to maturity.
3. On March 9, 2023 more than USD 40 billion left in a single day, and withdrawals of more than USD 100 billion were expected the next day, when the regulator closed the bank.
4. Technology and social media reduce the friction of withdrawing funds: in March 2023 roughly 20% to 30% of deposits moved per day, two to three times the historical maximum in the FSB sample.
5. Meeting regulatory limits is a floor and does not replace effective risk management; the assumptions that worked during years of low rates and abundant liquidity are no longer necessarily valid.