43. Institutions should articulate their risk appetite for IRRBB in terms of the risk to IRRBB …

Institutions should articulate their risk appetite for IRRBB in terms of the risk to IRRBB measures in particular:

(a) Institutions should have clearly defined risk appetite statements that are approved by their management body and implemented through comprehensive risk appetite frameworks – i.e., policies and procedures for limiting and controlling IRRBB.
(b) Their risk appetite frameworks should:
a. delineate delegated powers, lines of responsibility and accountability over IRRBB management decisions; and
b. list the instruments, hedging strategies and risk-taking opportunities authorised for IRRBB.
(c) In defining their risk appetites, institutions should take account of net interest income risks that may arise as a consequence of the accounting treatment of transactions in the non-trading book. The risk may not be limited to interest income and expenses: the effects of changes in interest rates on the market value of instruments that, depending on accounting treatment, are reflected either through the profit and loss account or directly in equity (via other comprehensive income), should be taken into account separately. Institutions should particularly take into account the impact related to embedded optionalities in fair value instruments under ongoing interest rate shocks and stress scenarios. Institutions should also take into account the potential impact on the P&L accounts of hedging interest rate derivatives if their effectiveness was hampered by interest rate changes.

1. Overview

Summary	Regulation

Requirements
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Standards
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