A complex balance sheet is one that has a sizable proportion of assets and/or liabilities that have special contractual features collectively described as having “optionality”.  These characteristics increase the risk profile of the institution. Most fixed-rate mortgage loans, for example, allow the borrower to prepay the loan if mortgage loan rates decline and to not prepay if rates go up. Similarly, if market rates decline, a callable bond will be called but if rates increase, the issuer will let the bond go to maturity because of its below-market coupon. From these examples, it should be readily apparent that such complexity complicates the risk measurement and management process.