The economic perspective focuses on the value of the bank in today's interest rate environment and the sensitivity of that value to changes in interest rates. The evaluation of interest rate risk must consider the impact of complex, illiquid hedging strategies or products, and also the potential impact on fee income which is sensitive to changes in interest rates. In those situations where trading is separately managed this refers to structural positions and not trading portfolios. In some banks, interest rate risk is captured under a broader category of market risk. Liquidity Risk Liquidity risk is the risk to earnings or capital arising from a bank's inability to meet its obligations when they come due, without incurring unacceptable losses.
Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources.
Liquidity risk also arises from the bank's failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. As with interest rate risk, many banks capture liquidity risk under a broader category of market risk. Liquidity risk, like credit risk, is a recognizable risk associated with banking. The nature of liquidity risk, however, has changed in recent years. Price Risk Price risk is the risk to earnings or capital arising from changes in the value of portfolios of financial instruments.