4.1 General provisions

Institutions should treat IRRBB as an important risk and always assess it solely, explicitly, and comprehensively in their risk management processes and internal capital assessment processes.

Institutions should identify their IRRBB exposures and ensure that they are adequately measured, monitored and controlled. Institutions should manage risks arising from their IRRBB exposures and, if necessary, mitigate risks that affect both their economic value and net interest income measures plus market value changes.

• (ii) CSRBB

Institutions should assess and monitor CSRBB explicitly and comprehensively in their risk management processes and internal capital assessment processes.

Institutions should identify their CSRBB exposures and ensure that they are adequately assessed, monitored, and controlled both under economic value and net interest income measures plus market value changes.

• (iii) Net interest income measure plus market value changes

For the purposes of these Guidelines, the net interest income upon which to calculate the impact of interest rate or credit spread movements should be determined by the interest income and expenses. For these purposes institutions should also consider market value changes of instruments — depending on accounting treatment (fair value/nGAAP) — either shown in the profit and loss account or directly in equity (e.g., via other comprehensive income). Institutions should take into account the increase or reduction in the amount of profit and losses and capital over short- and medium-term horizons resulting from interest rate or credit spread movements.

The change in the net interest income should be the difference between the expected net interest income under a shock or stress scenario from a going-concern perspective and the expected net interest income under a base scenario.¹¹ The change in the market value of instruments (fair value/nGAAP) should be the difference between the expected market value under a shock or stress scenario from a going-concern perspective and the expected market value under a base scenario at the end of the assessed horizon.

4.1.2 Other aspects, proportionality

¹¹ From an EVE viewpoint, the change in the economic value of equity should be the difference between the expected economic value of equity under a shock or stress scenario and the expected economic value of equity under a base scenario.

When implementing the Guidelines, institutions should identify their existing and prospective exposures to IRRBB and CSRBB in a proportionate manner, depending on the level, complexity and riskiness of their non-trading book positions, taking into account their business model, their strategies and the business environment they operate in or intend to operate in.

Based upon the assessment of their existing and prospective exposure to IRRBB and CSRBB, institutions should consider elements and expectations stipulated in this section 4.1 of the Guidelines and in the sections on capital identification, calculation and allocation for the purposes of IRRBB (section 4.2.2), IRRBB and CSRBB governance strategy (sections 4.2.3 and 4.5.2), measurement of IRRBB by an IMS (section 4.3.) and monitoring of CSRBB (section 4.6) and implement them in a way that is commensurate with existing and prospective exposures to IRRBB and CSRBB.

In addition to the existing and prospective exposure to IRRBB and CSRBB, when implementing the Guidelines, institutions should also consider their general level of sophistication and internal approaches to risk management to make sure that their approaches, processes and systems for the management of IRRBB and CSRBB are coherent with their general approach to risk management and their specific approaches, processes and systems implemented for the purpose of the management of other risks.