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    Calculates locally in your browser · IRRBB, EVE and NII
    Banking / ALM

    Interest-rate risk in the banking book

    The calculation that failed at Silicon Valley Bank. A balance sheet funded with short deposits and invested in long fixed-rate bonds looks solvent at book value and is deeply insolvent at market value the moment rates rise. Basel measures it two ways — economic value of equity and net interest income — and they can point in opposite directions.

    Worst scenario-16.7%Outlier testBreachedEVE sensitivity-62.9%
    EVE
    79.7
    present value of the banking book
    ΔEVE at 200 bp
    -50.2
    -16.7% of capital
    ΔNII
    -8.0
    -320.0% over twelve months
    One-year gap
    -400
    assets repricing inside a year minus liabilities
    Repricing schedule and scenarios
    The gap schedule first, then every standardised shock against the same book.
    -16.7%
    Repricing schedule and scenarios
    BucketAssetsLiabilitiesGapPV gap
    0.5y150400-250-249.7
    1.0y200350-150-152.7
    3.0y250120130102.9
    5.0y30060240180.7
    10.0y35020330198.5
    Total1250950-40079.7
    Parallel up-16.7%
    Long up-13.4%
    Steepener-10.1%
    Short down-0.3%
    Short up1.2%
    Flattener11.0%
    Long down15.3%
    Parallel down20.1%

    EVE and NII answer different questions and can disagree. A book that is asset-sensitive earns more NII when rates rise but loses EVE, because its long assets fall in value by more than its short liabilities.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    EVE against a parallel shock
    Concave, because the discount factors are convex in the rate. The asymmetry is the whole risk.
    EVE against a parallel shock0.00039.1178.22117.33156.43195.54-300-300-200-200-100-10000100100200200300300EVE
    ΔEVE by Basel scenario
    As a percentage of Tier 1 capital. The supervisory outlier test trips at 15%.
    ΔEVE by Basel scenario-19.68-10.39-1.108.1917.4826.77-16.73Parallel upParallel up-13.44Long upLong up-10.10SteepenerSteepener-0.295Short downShort down1.20Short upShort up10.97FlattenerFlattener15.31Long downLong down20.13Parallel downParallel downPercent of capital
    Canonical equations
    The exact relationships implemented by this engine.

    EVE = Σ A_t/(1+r_a)^t − Σ L_t/(1+r_l)^t · The economic value of the banking book.

    EVE(shock) − EVE(base) · Scaled by Tier 1 for the supervisory test.

    ΔNII = Σ_{t≤1} gap_t × Δr · Only the buckets that reprice inside the year.

    D = −(ΔEVE/EVE)/Δr · The equity duration implied by the shock.

    finance methodology

    A clear path from inputs to results.

    The calculation that failed at Silicon Valley Bank. A balance sheet funded with short deposits and invested in long fixed-rate bonds looks solvent at book value and is deeply insolvent at market value the moment rates rise. Basel measures it two ways, and they can point in opposite directions.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Slot assets and liabilities by repricing bucket.
    2. Set the asset yield and the liability cost.
    3. Enter Tier 1 capital and a parallel shock.
    4. Read EVE, the change under the shock, the NII sensitivity and the scenario table.

    The formula

    EVE=∑At(1+ra)t−∑Lt(1+rl)t\mathrm{EVE} = \sum \frac{A_t}{(1+r_a)^t} - \sum \frac{L_t}{(1+r_l)^t}

    Reference: BCBS (2016), Interest rate risk in the banking book, standardised framework and supervisory outlier test.

    Worked example

    A bank that borrows short and lends long

    Inputs
    • Assets 150/200/250/300/350 across 0.5 to 10 years at 5%.
    • Liabilities 400/350/120/60/20 at 2%.
    • Tier 1 capital 300, parallel shock +200 bp.
    Calculation path
    1. 1

      The present value of the assets is 1002.9 and of the liabilities 923.2, so EVE is 79.7.

    2. 2

      A 200 bp parallel rise discounts the long assets much harder than the short liabilities.

    3. 3

      EVE falls to 29.5, a change of −50.2.

    4. 4

      That is −16.7% of Tier 1 capital, which breaches the 15% supervisory outlier test.

    5. 5

      The one-year gap is −400, so net interest income also falls by 8.0 over the next twelve months.

    Result

    EVE 79.7 · ΔEVE −50.2 (−16.7% of capital) · ΔNII −8.0.

    Interpreting the result

    Both measures move the same way here, which happens when the book is short-funded and long-invested: rising rates hurt the balance sheet and the income statement at once. The more common case is that they disagree, and the standard asks for both precisely so that a bank cannot flatter one by optimising the other.

    Assumptions & limitations

    • Cash flows are slotted by repricing date into five buckets, with no optionality.
    • A single flat discount rate per side, not a curve.
    • The standardised shocks are applied with a five-year linear ramp between the short and long ends.
    • Behavioural assumptions for non-maturity deposits are not modelled.

    Frequently asked questions

    Why did SVB fail on this measure?

    Because its assets were long-dated and its deposits were short and, in practice, flighty. The EVE calculation showed the loss; the liquidity run is what made it fatal.

    Why do EVE and NII disagree?

    EVE is a present value over the whole life of the book; NII is a one-year flow. A book can gain income from higher rates while losing value.

    What is the 15% outlier test?

    A supervisory threshold: if the worst standardised scenario moves EVE by more than 15% of Tier 1, the bank is an outlier and faces additional scrutiny.

    Are deposits really that short?

    Core deposits behave much longer than their contractual repricing. The modelling assumption for them is the single most consequential judgement in an IRRBB calculation.

    Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.