26. Capital adequacy assessments for IRRBB should take into account the following: (a) the size and …

Capital adequacy assessments for IRRBB should take into account the following:

(a) the size and tenor of internal limits on IRRBB exposures, and whether or not these limits are reached at the point of capital calculation;
(b) the expected cost of hedging open positions that are intended to take advantage of internal expectations of the future level of interest rates;
(c) the sensitivity of the internal measures of IRRBB to key or imperfect modelling assumptions;
(d) the impact of shock and stress scenarios on positions priced with different interest rate indices (basis risk);
(e) the impact on economic value and net interest income plus market value changes of mismatched positions in different currencies;
(f) the impact of embedded losses and embedded gains;
(g) the distribution of capital relative to risks across legal entities included in the group’s prudential perimeter of consolidation, in addition to the adequacy of overall capital on a consolidated basis;
(h) the drivers of the underlying risk; and
(i) the circumstances under which the risk may materialise.

1. Overview

Summary	Regulation

Requirements
Source	Requirement

Standards
Source	Requirement