30. In considering whether or not an allocation of internal capital should be made in respect of …

In considering whether or not an allocation of internal capital should be made in respect of IRRBB to earnings, institutions should take into account the following:

• (a) The relative importance of net interest income to total net income, and therefore the impact of significant variations in net interest income from year to year;
• (b) The actual levels of net interest income achievable under different scenarios (i.e. the extent to which margins are wide enough to absorb volatility arising from interest rate positions and changes in the cost of liabilities);
• (c) The potential for actual losses to be incurred under stressed conditions, or as a result of secular changes in the market environment, e.g. where it might become necessary to liquidate positions that are intended as a long-term investment to stabilise earnings;
• (d) The relative importance of interest rate sensitive instruments (including interest rate derivatives) in the non-trading book, with potential effects shown either in the profit and loss account or directly in equity (e.g. via other comprehensive income); and
• (e) The fluctuation of net interest income, the strength and stability of the earnings stream and the level of income needed to generate and maintain normal business operations. Institutions with a high level of IRRBB that could, under a plausible range of market scenarios, result in losses, in curtailing normal dividend distribution, or in a decrease in business operations should ensure that they have sufficient capital to withstand the adverse impact of these scenarios.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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