Core Viewpoint - The management of interest rate risk is becoming a critical factor for large domestic banks in their allocation of long-term bonds, particularly from 2024 to 2025, as high government bond issuance continues to exert pressure on banks' asset allocation strategies [3][9]. Group 1: Current State of Interest Rate Risk Management - The requirements for interest rate risk management in Chinese banks are primarily based on the Basel Committee's framework, which includes the economic value change indicator (△EVE) under adverse interest rate fluctuations [4][10]. - The current assumption for parallel interest rate shocks in RMB is set at 225 basis points, which is higher than that for USD, indicating a stricter capital requirement for Chinese banks [13][19]. - The historical volatility of RMB interest rates has decreased significantly since 2008, suggesting that the current shock assumptions may be overly stringent compared to recent trends [14][19]. Group 2: Misconceptions About Interest Rate Risk - The collapse of Silicon Valley Bank (SVB) was primarily due to liquidity issues rather than interest rate risk, highlighting a misunderstanding in the market regarding the nature of bank failures [5][25]. - Stability in the liability side of banks can mitigate the risks associated with rising interest rates, as evidenced by the Japanese banking sector's resilience during recent rate increases [27][28]. - Historical instances of rising interest rates in China have typically been short-lived, allowing banks to manage temporary losses without triggering significant risk events [29][30]. Group 3: Structural Changes in Financing and Interest Rate Risk - Since 2015, the proportion of bond financing, particularly government bonds, in social financing has been increasing, leading to a longer average duration of bank assets [6][39]. - The average duration of government bonds is significantly longer than that of corporate loans, which contributes to the mismatch in asset-liability durations for banks [39][46]. - The current trend of increasing government bond issuance necessitates a careful approach to managing interest rate risk, as longer durations inherently increase exposure to interest rate fluctuations [46][47]. Group 4: Recommendations for Managing Interest Rate Risk - A coordinated approach between monetary and fiscal policies is essential to mitigate interest rate risks while supporting government bond issuance [54][55]. - The central bank's balance sheet expansion can help lower market interest rate risks and support government financing costs, thereby stabilizing the macroeconomic environment [54][56]. - Adjustments to the interest rate risk management requirements for banks should be considered to align with the current economic context and reduce unnecessary constraints on long-term bond allocations [58].