+4. Guidelines on the management of interest rate risk and on the assessment and monitoring of credit spread risk, arising from non-trading book activities
---+4.1 General provisions
------+10. Institutions should treat IRRBB as an important risk and always assess it solely, explicitly …
------+11. Institutions should identify their IRRBB exposures and ensure that they are adequately …
------+12. Institutions should assess and monitor CSRBB explicitly and comprehensively in their risk …
------+13. Institutions should identify their CSRBB exposures and ensure that they are adequately …
------+14. For the purposes of these Guidelines, the net interest income upon which to calculate the …
------+15. The change in the net interest income should be the difference between the expected net …
------+16. When implementing the Guidelines, institutions should identify their existing and prospective …
------+17. Based upon the assessment of their existing and prospective exposure to IRRBB and CSRBB …
------+18. In addition to the existing and prospective exposure to IRRBB and CSRBB, when implementing the …
---+4.2 Identification and management of IRRBB
------+19. Institutions should consider all interest rate sensitive instruments in the banking book in the …
------+20. Institutions should consider non-performing exposures (net of provisions) as interest rate …
------+21. Without prejudice to paragraph 10, small trading book business, as defined by paragraph 1 of …
------+22. When evaluating the amounts, types and distributions of internal capital pursuant to Article 73 …
------+23. Institutions should demonstrate that their internal capital is commensurate with the level of …
------+24. In their ICAAP analysis of the amount of internal capital required for IRRBB, institutions …
------+25. Institutions should not only rely on the supervisory assessments of capital adequacy for IRRBB …
------+26. Capital adequacy assessments for IRRBB should take into account the following: (a) the size and …
------+27. The outcomes of the capital adequacy for IRRBB should be considered in an institution’s ICAAP …
------+28. To calibrate the amount of internal capital to be held for IRRBB, institutions should use …
------+29. Institutions that operate internal capital models should ensure that the internal capital …
------+30. In considering whether or not an allocation of internal capital should be made in respect of …
------+31. Institutions should consider internal capital buffer adjustments where the results of their …
------+32. The IRRBB strategy of the institution, including the risk appetite for IRRBB and IRRBB …
------+33. The institution’s risk appetite for IRRBB should be express ed in terms of the acceptable …
------+34. The overall IRRBB strategy should also include the decision about the extent to which the …
------+35. Institutions should duly assess proposals to use new products, or engage in new activities …
------+36. Institutions using derivative instruments to mitigate IRRBB exposures should possess the …
------+37. Institutions using models of customer behaviour as input for the measurement of their IRRBB …
------+38. When making decisions on hedging activities, institutions should be aware of the effects of …
------+39. Consolidating institutions should ensure that internal governance arrangements and processes …
------+40. In view of having internal governance arrangements pursuant to Article 74 and 88 of Directive …
------+41. The management body should, in particular, be responsible for the following: (a) Understanding …
------+42. Institutions should have delegation arrangements and procedures in place for any delegation by …
------+43. Institutions should articulate their risk appetite for IRRBB in terms of the risk to IRRBB …
------+44. Institutions should implement limits that target maintaining IRRBB exposures consistent with …
------+45. A framework should be in place to monitor the evolution of hedging strategies that rely on …
------+Risk policies and processes
---------+46. The management body should, based on its overall IRRBB strategy, adopt robust risk policies …
---------+47. The policies should be well reasoned, robust and documented and should address all IRRBB …
---------+48. All IRRBB policies should be reviewed regularly, at least annually, and revised as needed.
---------+49. To ensure that the institution’s IRRBB management policies and procedures remain appropriate …
---------+50. The management body or its delegates should ensure that analysis and risk management activities …
------+Internal controls
---------+51. With regard to IRRBB control policies and procedures, institutions should have appropriate …
---------+52. Institutions should undertake regular reviews and evaluations of their internal control systems …
---------+53. Institutions should have their IRRBB identification, measurement, monitoring and control …
------+IRRBB IT system and data quality
---------+54. The IT systems and applications used by the institution to carry out, process and record …
---------+55. The IT system and transaction system should be capable of recording the repricing profile …
---------+56. For complex, structured products in particular, the transaction system should be able to gather …
---------+57. Adequate organisational controls of IT systems should be in place to prevent the corruption of …
---------+58. Risk measures should be based on reliable market and internal data. Institutions should …
---------+59. To ensure the high quality of data, institutions should implement appropriate processes that …
---------+60. Where institutions slot cash flows into different time buckets (e.g., for gap analyses) or …
---------+61. Institutions should identify potential reasons for discrepancies and irregularities that may …
---------+62. Institutions should set up appropriate processes to ensure that the data used to feed models …
------+Internal reporting
---------+63. Institutions’ internal risk -reporting systems should provide timely, accurate and …
---------+64. The internal reports should be provided to the management body or its delegates with …
---------+65. The IRRBB reports should provide aggregate information as well as sufficient supporting detail …
---------+66. The IRRBB reports should, on a regular basis, include the results of the model reviews and …
---------+67. While the types of reports prepared for the management body or its delegates will vary based on …
---------+68. Based on these reports, the management body or its delegates should be able to assess the …
---------+69. The internal measurement system should generate reports in a format that allows the different …
------+Model governance
---------+70. Institutions should ensure that the validation of IRRBB measurement methods — which should be …
---------+71. The validation framework should include the following five core elements: (a) evaluation of …
---------+72. In addressing the expected initial and ongoing validation activities, the policy should …
---------+73. Model risk management for IRRBB measures should follow a holistic approach that begins with …
---------+74. The review and validation results and any recommendations on model usage should be presented to …
---------+75. The ongoing review process should establish a set of exception trigger events that obligate the …
---------+76. On the basis of observations and new information gained over time, an approved model may be …
---------+77. Institutions may rely on third-party IRRBB models to manage and control IRRBB, provided that …
---------+78. Model inputs or assumptions, whether stemming from internal model processes or from third …
---+4.3 Measurement of IRRBB by an institution ’ s internal system
------+79. Institutions should implement robust internal measurement systems (IMSs) that capture all …
------+80. Institutions should measure their exposure to IRRBB in terms of potential changes to both the …
------+81. If commercial margins and other spread components are excluded from economic value measures …
------+82. When calculating net interest income measures to evaluate IRRBB exposures, institutions should …
------+83. Institutions should consider non-performing exposures (net of provisions) as interest rate …
------+84. When measuring their exposure to IRRBB, institutions should not purely rely on the calculation …
------+85. Institutions should not rely on a single measure of risk but should instead use the range of …
------+86. The limitations of each quantitative tool and model used should be fully understood by the …
------+87. Institutions should identify and measure all components of IRRBB. In order to identify …
------+Table 1: Identification of sub-components of interest rate risk in the non-trading book
------+Component Method Focus
------+Component Method Focus
---------+88. For measuring and monitoring of IRRBB, institutions should use at least one net interest income …
---------+89. Institutions should regularly, at least quarterly and more frequently in times of increased …
---------+90. Institutions should consider whether to apply a conditional or unconditional cash flow …
---------+91. Institutions should assess exposures in each currency in which they have positions. For the …
---------+92. When selecting interest rate shock scenarios, institutions should consider the following: (a) …
---------+93. The results of shock scenarios should feed into the decision-making at appropriate management …
---------+94. IRRBB stress testing should be considered in the ICAAP, where institutions should undertake …
---------+95. IRRBB stress testing should be performed regularly, at least annually and more frequently in …
---------+96. The IRRBB stress-testing framework should include clearly defined objectives, scenarios …
---------+97. In enterprise-wide stress tests, the interaction of IRRBB with other risk categories (credit …
---------+98. Institutions should perform reverse stress tests in order to (i) identify interest rate …
---------+99. For IRRBB assessment purposes, in testing vulnerabilities under stressed conditions …
---------+100. The results of stress scenarios should feed into the decision-making at the appropriate …
---------+101. For the purpose of sensitivity analysis under stress scenarios, institutions should evaluate …
---------+102. In cases where balance sheet instruments have significant repricing restrictions (e.g., caps …
---------+103. When measuring IRRBB, institutions should fully understand and document key behavioural and …
---------+104. In assessing the risk of interest rate-sensitive products that are linked to inflation or …
---------+105. When measuring IRRBB, pension obligations and pension plan assets should be included unless …
---------+106. Institutions should, in relation to the different IRRBB measures, where applicable, take into …
---------+107. As market conditions, competitive environments and strategies change over time, institutions …
---------+108. In assessing the implications of optionality, institutions should take into account: (a) The …
---------+109. Institutions should have policies in place governing the setting of, and the regular …
---------+110. Non-maturity deposits from financial customers should not be subject to behavioural modelling …
---------+111. Except for the regulated savings referred to in paragraph (a) of Article 428f(2) of the CRR …
---------+112. In making behavioural assumptions about accounts without specific repricing dates for the …
------+b) Corporate planning assumptions for own equity capital for the purpose of IRRBB
---------+113. Where institutions decide to adopt a policy intended to stabilise earnings arising from their …
---------+114. In deciding the investment term assumptions for equity capital, institutions should avoid …
---------+115. The investment term assumptions used to manage the risks to the different IRRBB measures …
---------+116. Where an institution has not set explicit assumptions for the investment term of equity …
---+4.4 Non-satisfactory IRRBB internal systems
------+117. Paragraph 3 of Article 84 of Directive 2013/36/EU empowers competent authorities to require an …
------+118. As a minimum, satisfactory internal systems should be implemented in compliance with these …
------+119. More specifically, internal systems should be considered as not satisfactory in the following …
---+4.5 Identification and assessment of CSRBB
------+120. CSRBB captures a combination of two elements: (a) The chang es of the “market credit spread” …
------+121. CSRBB does not include the effect of credit quality changes during the observation period …
------+122. CSRBB excludes non-performing exposures.
------+123. When assessing changes in credit risk premium and liquidity premium movements, institutions …
------+124. Institutions should not exclude any instrument in the banking book from the perimeter of CSRBB …
------+125. Without prejudice to paragraph 12, small trading book business, as defined by paragraph 1 of …
------+126. The CSRBB strategy of the institution, including the risk appetite for CSRBB should be part of …
------+127. The institution’s risk appetite for CSRBB should be expressed in terms of the impact of …
------+128. Institutions should ensure that procedures to identify, measure and monitor CSRBB have been …
------+129. Consolidating institutions should ensure that internal governance arrangements and processes …
------+130. In view of having internal governance arrangements pursuant to Article 74 and 88 of Directive …
------+131. The management body or its delegates should, in particular, be responsible for the following …
------+132. Institutions should have delegation arrangements and procedures in place for any delegation by …
------+Risk policies and processes
---------+133. The management body should, based on its overall CSRBB strategy, adopt robust risk policies …
---------+134. The policies should be well reasoned, robust and documented and should address all CSRBB …
---------+135. To ensure that the institution’s CSRBB management policies and pr ocedures remain appropriate …
---------+136. The management body or its delegates should ensure that analysis and risk management …
------+Internal controls
---------+137. With regard to CSRBB control policies and procedures, institutions should have appropriate …
---------+138. Institutions should have their CSRBB identification, measurement, monitoring and control …
------+CSRBB IT system and data quality
---------+139. The IT systems and applications used by the institution to carry out, process and record …
---------+140. The IT system should be capable of recording the credit spread characteristics of the products.
---------+141. The systems used to measure CSRBB should be capable of capturing the CSRBB characteristics of …
---------+142. Risk measures should be based on reliable market and internal data. Institutions should …
---------+143. To ensure the high quality of data, institutions should implement appropriate processes that …
------+Internal reporting
---------+144. Institutions’ internal risk -reporting systems should provide timely, accurate and …
---------+145. The internal reports should be provided to the management body or its delegates with …
---------+146. The CSRBB reports should provide aggregate information as well as sufficient supporting detail …
---------+147. The CSRBB reports should, on a regular basis, include the results of the model reviews and …
---------+148. While the types of reports prepared for the management body or its delegates will vary based …
---------+149. Based on these reports, the management body or its delegates should be able to assess the …
---------+150. The internal measurement system should generate reports in a format that allows the different …
------+Model governance
---------+151. Institutions should ensure that the validation of CSRBB measurement methods — which should be …
---+4.6 Monitoring of CSRBB
------+152. Institutions should implement robust internal measurement systems (IMSs) that capture all …
------+153. Institutions should monitor their exposure to CSRBB in terms of potential changes to the …
------+154. Institutions should develop and use their own assumptions and calculation methods for the …
------+155. The limitations of each quantitative tool and model used should be fully understood by the …
------+156. As an exception, in the practical implementation of paragraph 120 and for proportionality …
------+157. When measuring CSRBB, institutions should fully understand and document key modelling …
------+158. Institutions should take into account the implications of accounting practices for the …
------+159. If the reliability and stability of diversification assumptions are appropriately validated …
------+160. As market conditions, competitive environments and strategies change over time, institutions …
------+161. For the purpose of CSRBB, institutions should set-up prudent documentation supporting their …

4. Guidelines on the management of interest rate risk and on the assessment and monitoring of credit spread risk, arising from non-trading book activities

4. Guidelines on the management of interest rate risk and on the assessment and monitoring of credit spread risk, arising from non-trading book activities

1. Overview

,
4.1 General provisions

4.1.1 IRRBB and CSRBB

  • (i) IRRBB
4.2 Identification and management of IRRBB

4.2.1 Perimeter of IRRBB
4.3 Measurement of IRRBB by an institution ’ s internal system

4.3.1 General approach to measurement of IRRBB
4.4 Non-satisfactory IRRBB internal systems

4.4 Non-satisfactory IRRBB internal systems
4.5 Identification and assessment of CSRBB

4.5.1 Perimeter of CSRBB
4.6 Monitoring of CSRBB

4.6.1 General approach for the monitoring of CSRBB

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

Requirements

3. Related Standards

Standards
  • EBA - Published by the European Banking Authority at https://www.eba.europa.eu/