Publication Details
Abstract
Market risk represents one of the most consequential threats to the financial stability of commercial banks, encompassing exposure to adverse movements in interest rates, foreign exchange rates, equity prices, and commodity prices. This article provides a comprehensive examination of market risk management in commercial banking institutions, analysed through the IMRAD (Introduction, Methods, Results, and Discussion) framework. Drawing on a systematic review of theoretical literature, regulatory documents, empirical studies, and case evidence from the period 1988–2025, the study investigates the classification of market risks, the evolution of measurement methodologies from traditional gap analysis and duration models to advanced Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR/Expected Shortfall), and stress-testing frameworks. The regulatory trajectory from Basel I through the Fundamental Review of the Trading Book (FRTB) is critically evaluated. Findings indicate that while quantitative risk models have grown increasingly sophisticated, model risk, procyclicality, and the underestimation of tail events continue to undermine their effectiveness, as demonstrated during the 2007–2009 Global Financial Crisis and the COVID-19 market dislocation of 2020. Emerging challenges—including digital asset volatility, climate-related financial risk, and algorithmic trading—are identified as priority areas requiring the integration of advanced analytics, real-time data infrastructure, and adaptive governance frameworks. The article concludes with evidence-based recommendations for strengthening market risk management in contemporary commercial banks.