| Interest rate risk arising from non-trading book activities | The current and prospective risk of a negative impact to the institution’s economic value of equity, or to the institution’s net interest income, taking market value changes into account as appropriate, which arise from adverse movements in interest rates affecting interest rate sensitive instruments, including gap risk, basis risk and option risk. |
| Interest rate sensitive instruments | Assets, liabilities and off-balance-sheet items in the non-trading book, which are sensitive to interest rate changes (excluding assets deducted from CET1 capital – e.g., real estate or intangible assets or equity exposures in the non-trading book). |
| Credit spread sensitive instruments | Assets, liabilities and off-balance-sheet items in the non-trading book, which are sensitive to credit spread changes (excluding assets deducted from CET1 capital – e.g., real estate or intangible assets or equity exposures in the non-trading book). |
| Gap risk | Risk resulting from the term structure of interest rate sensitive instruments that arises from differences in the timing of their rate changes, covering changes to the term structure of interest rates occurring consistently across the yield curve (parallel risk) or differentially by period (non-parallel risk). |
| Basis risk | Risk arising from the impact of relative changes in interest rates on interest rate sensitive instruments that have similar tenors but are priced using different interest rate indices. Basis risk arises from the imperfect correlation in the adjustment of the rates earned and paid on different interest rate sensitive instruments with otherwise similar rate change characteristics. |
| Option risk | Risk arising from options (embedded and explicit), where the institution or its customer can alter the level and timing of their cash flows, namely the risk arising from interest rate sensitive instruments where the holder will almost certainly exercise the option if it is in their financial interest to do so (embedded or explicit automatic options) and the risk arising from flexibility embedded implicitly or within the terms of interest rate sensitive instruments, such that changes in interest rates may affect a change in the behaviour of the client (embedded behavioural option risk). |
| Credit spread risk from non-trading book activities (CSRBB) | Risk driven by changes of the market price for credit risk, for liquidity and for potentially other characteristics of credit-risky instruments, which is not captured by another existing prudential framework such as IRRBB or by expected credit/(jump-to-) default risk. CSRBB captures the risk of an instrument’s changing spread while assuming the same level of creditworthiness, i.e. how the credit spread is moving within a certain rating/PD range. |
| Net interest income measures | Measures of changes in expected future profitability within a given time horizon resulting from interest rate movements, in case of IRRBB; or from credit spread changes, in case of CSRBB. It encompasses interest income and interest expenses. |
| Net interest income measures plus market value changes | Net interest income measures after the market value changes of instruments have been accounted for/taken into account depending on accounting treatment either through fair value measures or nGAAP. |
| Economic value (EV) measures | Measures of changes in the net present value of interest rate sensitive instruments over their remaining life resulting from interest rate movements, in case of IRRBB; or of changes in the net present value of instruments sensitive to credit spread changes over their remaining life resulting from credit spread movement, in case of CSRBB. EV measures reflect changes in value over the remaining life of the interest rate sensitive instruments, in case of IRRBB, or of the credit spread risk sensitive instruments, in case of CSRBB – i.e., until all positions have run off. |
| Economic value of equity (EVE) measures | A specific form of EV measure where equity is excluded from the cash flows. |
| Conditional cash flow modelling | Cash flow modelling under the assumption that the timing or amount of cash flows is dependent on the specific interest rate scenario. |
| Unconditional cash flow modelling | Cash flow modelling under the assumption that the timing and amount of cash flows is independent of the specific interest rate scenario. |
| Run-off balance sheet | A balance sheet including on- and off-balance-sheet items where existing non-trading book positions amortise and are not replaced by any new business. |
| Dynamic balance sheet | A balance sheet including on- and off-balance-sheet items incorporating future business expectations, adjusted for the relevant scenario in a consistent manner. |
| Constant balance sheet | A balance sheet including on- and off-balance-sheet items in which the total size and composition are maintained by replacing maturing or repricing cash flows with new cash flows that have comparable features with regard to the amount, repricing period and spread components. |
| Retail | A natural person or a SME, where the SME would qualify for the retail exposure class under the Standardised or IRB approaches for credit risk, or a company which is eligible for the treatment set out in Article 153(4) of Regulation (EU) No 575/2013 and where the aggregate deposits by that SME or company on a group basis do not exceed EUR 1 million. |
| Transactional deposit and accounts | Transactional deposits and transactional accounts are those retail non-maturity deposits where regular transactions are carried out (e.g., where salaries are regularly credited) or those retail non-maturity deposits which are non-interest bearing even in a high interest rate environment. Other retail deposits shall be considered as held in a non-transactional account. Economic Value (EV) measures and Net interest income measures plus market value changes, |
| IRRBB measures | applied in the context of the sensitivity to changes in the interest rates. Economic Value (EV) measures and Net interest income measures plus market value changes, |
| CSRBB measures | applied in the context of the sensitivity to changes in market credit/liquidity spreads. |