Balance sheet risk management

The Society uses derivatives to manage structural balance sheet risk. Structural risk arises from market differentials between short-term and long-term interest rates (interest rate risk), market differentials between different currencies (currency risk), in addition to a difference in basis to which rates or indices are referenced (basis risk). Consistent with its legal status, the Society uses derivative investments purely to hedge risk and does not employ hedging instruments for the purposes of making speculative gains.

Within this statutory restriction and having regard to prudential guidance, the Society uses the following types of hedging contracts:

  • Interest Rate Swaps
  • Cross Currency Interest Rate Swaps
  • Basis Swaps
  • Index Linked Swaps

For more information about the Society’s approach to Balance Sheet Risk Management, please contact the Dealing team at