How Do Regulation and Financial Markets Conditions Affect Interest Rate Risk Exposure: Evidence from Italian Commercial Banks

The regulation of interest rate risk in the banking book has been going through a relevant evolution. The study examines the introduction of six new interest rate shock scenarios, the adoption of a minimum post-shock interest rate, which is negative and increasing with the maturity, in the case of downward scenarios, and the provision of a new transmission criterion of the interest rates shock to the bank economic value. Based on the results referred to a sample of less significant Italian banks, the new rules prove to be more prudential and better suited to anticipate the evolution of a bank's actual exposure