Help needed with IRRBB

Water Cooler Careers
#1

I just read a white paper regarding the Basel 2 directive. I’d like some additional feedback regarding this paragraph:

“IRRBB refers to the current or prospective risk to the bank’s capital and earnings arising from adverse movements in interest rates that affect the bank’s banking book positions. When interest rates change, the present value and timing of future cash flows change”

How does the change in interest rates change the timing of future cash flows?

The only exemple that I can come up with is a MBS or mortgage where a decrease in interest rate might lead to refinancing/paying back the loan prematurely in order to borrow at the new lower rate.
Are there any other situations where changes in interest rate might lead to change in timing of CF?

#2

Almost everything can change. Depositors withdraw, switch accounts, modify balances. Borrowers prepay or pay slower. Structured securities extend and contract in maturity. And yes, mortgages and mortgaged backed securities vary as well

If you google interest rate risk modeling, you’ll find all the information you need