| structure and the nature, scope and complexity corresponding to the most sophisticated institutions. | of activities of Indicative supervisory expectations | institutions; with Category regarding IRRBB | 1 metric and modelling | depending |
| IRRBB metric and modelling | on the institution’s sophistication | category | | |
| Cash flow modelling Metric | Category 4 institution | Category 3 institution | Category 2 institution | Category 1 institution |
| Unconditional cash Earnings-based: flows (it is assumed Gap analysis: that the timing of cash • Repricing gap flows is independent of the specific interest rate scenario) | Time buckets advised in the Banking Supervision’s Standards the Management and Supervision Rate Risk in the banking book’ BCBS Standards). | Basel Committee on ‘Principles for of Interest from April 2016 Time buckets advised in BCBS Standards, | [Gap based on evolving size banking book due to business interest rate environments. commercial margins consistent scenario (see section 4.4, ‘Measurement’).]* [Partial duration computed per instrument | and composition of the responses to differing Including projected with the interest rate [Partial duration computed per |
| Economic value: Duration analysis: • • Modified duration/PV01 equity Partial modified of | Time buckets advised in BCBS Standards. Application standard Yield with corresponding tenors curve shocks. model of to the | application of partial duration weights. Application shocks rate scenarios ‘Measurement’). shock and (see and other of standard section stress Yield interest 4.4, | type and time bucket. Application of standard and shock (see ‘Measurement’). other section and interest stress 4.4, scenarios Yield rate | transaction and time bucket. Application of ‘Measurement’). standard interest stress section scenarios 4.4, rate and shock other (see Yield and |
| duration/partial PV01 | time buckets. Indicative supervisory expectations | curve model with tenors corresponding buckets. to the time regarding IRRBB | curve model with tenors corresponding to the time buckets .]* metric and modelling | curve model with tenors to the time corresponding buckets. ]* depending |
| IRRBB metric and modelling | on the institution’s sophistication | category | | |
| Cash flows partially or Earnings-based: fully conditional on • Net interest income interest rate scenario (NII) ( timing of cash flows of options, of instruments with embedded, explicit options and – in more sophisticated approaches – of instruments of which the maturity depends on clients’ behaviour, is modelled conditional on the interest rate scenario) | Standard shocks applied to earnings under a constant balance sheet. Based on time buckets advised in the BCBS Standards. Indicative supervisory expectations | Standard and other interest rate shock and stress scenarios for the yield curve (see section 4.4, ‘Measurement’) applied to earnings, reflecting constant balance sheet or simple assumptions about future business development. regarding IRRBB | Standard and other interest rate shock and stress scenarios for the yield curve and between key market rates separately (see section 4.4, ‘Measurement’) applied to earnings projected by business plan or constant balance sheet. Including projected commercial margins consistent with the interest rate scenario (see section 4.4, ‘Measurement’). metric and modelling | Comprehensive interest rate and stress scenarios, combining shifts of yield curves with changes in basis and credit spreads, as well as changes in customer behaviour, are applied to reforecast business volumes and earnings to measure the difference compared with the underlying business plan. Including projected commercial margins consistent with the interest rate scenario (see section 4.4, ‘Measurement’). depending |
| IRRBB metric and modelling | on the institution’s sophistication | category | | |
| Economic value: • Economic value of equity (EVE) | Application of standard and and stress scenarios for the section 4.4, ‘Measurement’), advised in the BCBS Standards; corresponding to the time | other interest rate shock yield curve (see using time buckets as yield curve tenors buckets. | Measure computed on transaction or cash flow basis. Application of standard and other interest rate shock and stress scenarios for the yield curve and between key market rates separately (see section 4.4, ‘Measurement’). Adequate tenors in yield curves. Full optionality valuation. | Comprehensive interest rate and stress scenarios, combining shifts of yield curves with changes in basis and credit spreads, as well as changes in customer behaviour. Adequate tenors in all yield curves. Full optionality valuation. Scenario analysis complemented by Monte Carlo or historical simulations on portfolios with material optionality. Daily updating of risk factors. |