HWMNBN on why we use "Basis points" rather than "percentage points":


Two main reasons

a) To avoid relative vs absolute confusion.

Let's say a given interest rate is 20%. If we say it's increased by 2%, you can interpret it as: either 20% -> 22% (absolute), or 20% -> 20.4% (relative)

Saying 200bps makes it very clear it's an absolute increase in the rate from 20% -> 22%

b) Granularity.

Most times interest rates increase by tiny increments. eg 4.5% -> 4.52%, etc. However these granular increases can have large effects on exposure (because we're usually

talking about million or billion dollar impacts here). It's mentally easier to visualise 10-15bps as having a large effect vs 0.1%

Same reason why we have cents, rather than denominating everything in dollars (eg 0.5 dollars, 0.65 dollars) - it's just more convenient