4.1 General provisions

Institutions should treat IRRBB as an important risk and always assess it explicitly and comprehensively in their risk management processes and internal capital assessment processes. A different approach should be fully documented and justified in the course of the supervisory dialogue.

Institutions should identify their IRRBB exposures and ensure that IRRBB is adequately measured, monitored and controlled.

Institutions should manage and mitigate risks arising from their IRRBB exposures that affect both their earnings and economic value.

When calculating the impact of interest rate movements in the earnings perspective, institutions should consider not only the effects on interest income and expenses, but also the effects of the market value changes of instruments — depending on accounting treatment — 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 earnings and capital over short- and medium-term horizons resulting from interest rate movements.

The change in earnings should be the difference between expected earnings under a base scenario and expected earnings under an alternative, more adverse shock or stress scenario from a going-concern perspective.

Institutions should consider non-performing exposures¹³ (net of provisions) as interest rate sensitive instruments reflecting expected cash flows and their timing.

¹³ Non-performing exposures as defined in Annex V of Regulation (EU) 680/2014.

Institutions should consider interest rate derivatives, as well as off-balance-sheet items such as interest rate sensitive loan commitments, as interest rate sensitive instruments.

Institutions should monitor and assess their CSRBB-affected exposures, by reference to the asset side of the non-trading book, where CSRBB is relevant for the risk profile of the institution.

When implementing the guidelines, institutions should identify their existing and prospective exposure to IRRBB in a proportionate manner, depending on the level, complexity and riskiness of the non-trading book positions they face, or an increasing risk profile 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, institutions should consider elements and expectations stipulated in this section and in the sections on capital identification, calculation and allocation (section 4.2.), governance (section 4.3.) and measurement (section 4.4.) and implement them in a way that is commensurate with existing and prospective exposure to IRRBB.

In addition to the existing and prospective exposure to IRRBB, 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 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.