What is Interest Rate Risk (IRR)?
Interest Rate Risk (IRR) is the risk that changes in interest rates will negatively affect a bank’s earnings or capital. For example:
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Rising rates can reduce the value of a bank's assets.
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Falling rates can squeeze the bank’s profit margins.
What Does This Report Do?
The Office of the Comptroller of the Currency (OCC) collects data from 851 midsize and community banks to:
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Assess how banks would perform under interest rate changes.
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Measure earnings at risk (EAR) and economic value of equity (EVE) in different rate scenarios.
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Understand banks’ internal risk limits and assumptions.
Key Metrics Defined
| Term | Definition |
|---|---|
| Net Interest Income (NII) | The difference between interest earned on assets and interest paid on liabilities. |
| Earnings at Risk (EAR) | Projected change in NII under various interest rate shocks (short-term impact). |
| Economic Value of Equity (EVE) | Long-term impact on a bank's net worth from rate changes (market value of assets minus liabilities). |
| Parallel Shocks | Hypothetical scenarios where interest rates across all maturities rise or fall by the same amount (e.g., ±100bps). |
| Non-Maturity Deposits (NMDs) | Customer deposits with no fixed maturity date, like savings accounts or checking accounts. |
| Repricing Rate | The percentage of rate changes banks pass on to customers for deposits. |
| Average Life | The expected duration a deposit will stay with the bank. |
Highlights of Spring 2025 Findings
Earnings at Risk (NII Impact) for All Banks:
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A +400bps increase could reduce NII by up to 48% for the most exposed banks.
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Conversely, some banks could see a 46% increase in NII.
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Even a –200bps decrease would cause a 22% decline for the worst-affected, but gains of up to 20% are possible.
Economic Value of Equity (EVE) Impact:
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A +400bps rate hike could wipe out 157% of equity value for some banks.
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A –200bps drop shows mixed results: losses of 28% for some, gains of 102% for others.
Policy Risk Limits (What Banks Allow Themselves):
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Median policy limits for NII are typically –10% to –15% for ±200bps shocks.
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For EVE, limits are stricter, at –20% to –40% for larger shocks (+400bps).
Non-Maturity Deposit Assumptions:
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For Money Market accounts:
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Median repricing rate is 35% (banks pass 35% of rate changes to customers).
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Average life is 3.83 years.
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For Savings accounts:
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Median repricing rate is 15%.
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Average life is 5 years.
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Non-interest-bearing deposits assume longer lives (median 5 years) but don’t reprice.
Breakdown by Bank Size
| Bank Size | Earnings at Risk (NII) ±400bps | EVE Loss at +400bps |
|---|---|---|
| < $100M Assets | NII loss up to –35%, gain up to 51% | EVE loss up to –198% |
| $100M–$250M | NII loss up to –39%, gain up to 30% | EVE loss up to –126% |
| $500M–$1B | NII loss up to –71%, gain up to 53% | EVE loss up to –319% |
| > $10B | NII loss up to –24%, gain up to 21% | EVE loss up to –53% |
Insight:
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Smaller banks are more sensitive to rate shocks in both NII and EVE.
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Larger banks manage risk better, showing less extreme swings.
Why Does This Matter?
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Higher interest rates in 2025 have made IRR a central risk for banks.
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Strong IRR management protects against earnings volatility and capital erosion.
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Regulators use these statistics to spot systemic vulnerabilities.
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Banks benchmark their policies against peers to stay competitive and resilient.
Takeaways for Risk Professionals:
✅ Assess your bank’s EAR and EVE under multiple scenarios.
✅ Regularly update NMD assumptions based on behavior trends.
✅ Align policy limits with realistic stress scenarios (not outdated ones).
✅ Monitor exposure trends across peer groups and adjust strategies accordingly.
Disclaimer:
This summary is for informational purposes only and does not constitute regulatory guidance or financial advice. Refer to the official OCC report for complete data and methodology.
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