In a volatile rate environment and under growing regulatory scrutiny, banks are being asked to do more than just tick boxes. In a volatile market rate environment Interest rate risk in the banking book (IRRBB) is back in the spotlight, and Economic Value of Equity (EVE) is once again central to the conversation. But for some institutions, EVE still remains a compliance exercise—something produced quarterly, dusted off for audits, and quickly shelved.
It doesn’t have to be this way.
When implemented effectively, EVE can offer deep strategic value—delivering long-term visibility into structural interest rate risk, supporting better capital planning, and informing key balance sheet decisions. Here’s how banks can move beyond compliance and embed EVE into their strategic risk management frameworks.
1. Build a solid technical foundation
At its core, EVE measures the net present value of all expected future cash flows from a bank’s assets and liabilities. It gives a long-term perspective of interest rate risk—capturing not just what happens this quarter or next year, but how the bank’s entire balance sheet might react to shifts in yield curves over time.
Getting this right requires:
-
Accurate mapping of all positions to relevant time buckets based on repricing or behavioural characteristics
-
Robust modelling of customer behaviour—particularly for non-maturing deposits and prepayment risks
-
Dynamic scenario analysis across different yield curve shocks and stress scenarios
-
Use of consistent, risk-sensitive discount rates
This is where technology matters. Spreadsheets and siloed tools fall short. Banks need integrated ALM systems capable of high-frequency recalculations, accurate behavioural modelling, and comprehensive data coverage.
2. Focus on assumptions — they matter more than you think
EVE is only as strong as the assumptions behind it. And this is where many risk models fall down.
Customer behaviour isn’t static. Deposit stickiness changes with interest rate cycles. Prepayment speeds vary with macroeconomic sentiment. If your models don’t reflect these changes—or worse, if they rely on outdated or generic assumptions—you may be flying blind.
Key assumptions to review:
-
Effective duration of non-maturing deposits (e.g. current and savings accounts)
-
Prepayment curves on retail and mortgage products
-
Balance sheet evolution in response to market rates and customer behaviour
Review them regularly. Calibrate them with real data. And ensure they’re clearly documented and transparent to both internal stakeholders and regulators.
3. Governance is key
Shifting EVE from a reporting tool to a strategic lever requires strong governance. That means clearly defined roles, responsibilities, limits, and escalation procedures.
Best practice includes:
-
Risk appetite statements specifically covering EVE sensitivity thresholds
-
Pre-defined action triggers for major EVE shifts (e.g. hedging or balance sheet restructuring)
-
Senior management involvement in reviewing EVE trends and scenario results
-
Integration into ICAAP, product approval, and pricing discussions
Risk teams shouldn’t be managing EVE in isolation. Treasury, Finance, and Strategy functions all have a stake—and should have a seat at the table.
4. Make EVE part of decision-making
EVE analysis should feed into real business decisions—not just sit in a regulatory report.
-
Considering a new deposit product? Evaluate its impact on EVE.
-
Reviewing hedging strategy? Use EVE sensitivities to determine the most efficient structure.
-
Updating capital planning assumptions? Bring in long-term EVE trends and scenarios.
Leading banks integrate EVE into their ALCO discussions, capital planning cycles, and strategic balance sheet management. They understand that EVE isn’t about predicting the future—it’s about being prepared for it.
5. Choose a platform that supports strategic insight
At MORS Software, we help banks operationalise EVE with precision. Our integrated ALM and Treasury Management platform enables:
-
Behaviourally driven modelling across complex product sets
-
Transparent scenario analysis and regulatory compliance
-
Seamless integration of EVE, NII, and other risk metrics such as LCR and NSFR
-
Governance and reporting features to align technical analysis with strategic oversight
In short, we turn EVE from a static number into a living, breathing part of your decision-making process.
Conclusion
Yes, EVE is a regulatory requirement. But it’s also a powerful mirror—a way to see your bank’s balance sheet risk with clarity and foresight. By investing in better models, tighter governance, and more integrated tooling, banks can unlock the full strategic potential of Economic Value of Equity.
And that’s when compliance becomes a competitive advantage.