115. When calculating the change in EVE for the purpose of paragraphs 113 and 114, institutions …

When calculating the change in EVE for the purpose of paragraphs 113 and 114, institutions should in particular apply the following principles:

• (a) All positions from interest rate sensitive instruments should be taken into account.
• (b) Small trading book business should be included unless its interest rate risk is captured in another risk measure.
• (c) All CET1 instruments and other perpetual own funds without any call dates should be excluded from the calculation of the standard EVE outlier test.
• (d) Institutions should reflect automatic and behavioural options in the calculation. Institutions should adjust key behavioural modelling assumptions to the features of different interest rate scenarios.
• (e) Pension obligations and pension plan assets should be included unless their interest rate risk is captured in another risk measure.
• (f) The cash flows from interest rate sensitive instruments should include any repayment of principal, any repricing of principal and any interest payments.
• (g) Institutions with an NPE ratio¹⁵ of 2% or more should include NPEs as general interest rate sensitive instruments whose modelling should reflect expected cash flows and their timing. NPEs should be included net of provisions.
• (h) Institutions should consider instrument-specific interest rate floors.
• (i) The treatment of commercial margins and other spread components in interest payments in terms of their exclusion from or inclusion in the cash flows should be in accordance with the institutions’ internal management and measurement approach for interest rate risk in the non-trading book. Institutions should notify the competent authority whether they exclude commercial margins and other spread components from the calculation or not. If commercial margins and other spread components are excluded, institutions should (i) use a transparent methodology for identifying the risk-free rate at inception of each instrument; (ii) use a methodology that is applied consistently across business units; and (iii) ensure that the exclusion of commercial margins and other spread components from the cash flows is consistent with how the institution manages and hedges IRRBB.
• (j) The change in EVE should be computed with the assumption of a run-off balance sheet.
• (k) A maturity-dependent post-shock interest rate floor should be applied for each currency starting with -100 basis points for immediate maturities. This floor should increase by 5 basis points per year, eventually reaching 0% for maturities of 20 years and more. If observed rates are lower than the current lower reference rate of -100 basis points, institutions should apply the lower observed rate¹⁶ .
• (l) Institutions should calculate the change in EVE at least for each currency where the assets or liabilities denominated in that currency amount to 5% or more of the total non-trading book financial assets (excluding tangible assets) or liabilities, or less than 5% if the sum of assets or liabilities included in the calculation is lower than 90% of total non-trading book financial assets (excluding tangible assets) or liabilities (material positions).
• (m) When calculating the aggregate EVE change for each interest rate shock scenario, institutions should add together any negative and positive changes to EVE occurring in each currency. Positive changes should be weighted by a factor of 50%.
• (n) An appropriate general ‘risk-free’ yield curve per currency should be applied (e.g. swap rate curves). That curve should not include instrument-specific or entity-specific credit spreads or liquidity spreads.
• (o) The assumed behavioural repricing date for retail and non-financial wholesale deposits without any specific repricing dates (non-maturity deposits) should be constrained to a maximum average of 5 years. The 5-year cap applies individually for each currency. Non-maturity deposits from financial institutions should not be subject to behavioural modelling.

¹⁵ Ratio of non-performing exposures (non-performing debt securities and loans and advances/total gross debt securities and loans and advances) calculated at the level of the institution.

¹⁶ The EBA might envisage revising this floor to ensure that the lower reference rate will be sufficiently prudent given future developments in the interest rates.

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/