EBA欧洲银行-guidelines_IRRBB_000_19页_397kb

Summary of Technical Aspects of the Management of Interest Rate Risk Arising from Non-Trading Activities

Core Content

This document outlines the technical aspects of managing interest rate risk arising from non-trading activities, specifically interest rate risk in the banking book (IRRBB), under the supervisory review process (SREP) as part of Pillar 2 of the Basel framework. It is a follow-up to CEBS GL03 and aims to provide guidance to both institutions and supervisors on the identification, measurement, monitoring, and management of IRRBB.

Main Views

• Pillar 2 Flexibility: IRRBB is part of Pillar 2, which allows for a tailored approach, as opposed to the more standardized Pillar 1. Institutions are responsible for developing and maintaining their Internal Capital Adequacy Assessment Approach (ICAAP), which should identify and manage these risks.

• Supervisory Role: Supervisors are responsible for reviewing and evaluating the ICAAP, ensuring that the internal capital allocated is appropriate to the level of risk. The supervisory standard shock is a key tool used to assess the impact of interest rate changes on economic value, with a 20% threshold for action.

• Proportionality Principle: The complexity and depth of IRRBB management are expected to be proportional to the size and sophistication of the institution. Supervisors must ensure their approach is proportionate to the institution's risk profile and activities.

• Standard Shock Definition: CEBS proposes a common definition for the standard shock to ensure consistency across the EU. It is based on historical interest rate data and could equate to a 200 basis points parallel shift for major currencies. However, national supervisors may adjust this based on local conditions.

• Tools and Techniques: Institutions use a variety of tools including gap analysis, simulation techniques, and stress testing to measure IRRBB. These tools are applied to assess the impact of changes in interest rates, yield curve shape, and market conditions.

• Reporting and Disclosure: Institutions must be able to compute and report the effects of the standard shock on economic value and internal capital. They should also disclose their risk management policies, financial instruments, and assumptions used in their analysis.

• Supervisory Considerations: Supervisors should consider both qualitative and quantitative aspects of IRRBB management. They should also ensure that the supervisory process is complementary to broader financial stability analyses and flexible enough to accommodate various internal methodologies.

• Cross-Border Coordination: For cross-border groups, consolidating supervisors must coordinate their approaches to ensure a level playing field and consistent application of the standard shock.

Key Information

Legal Basis

• Directive 2006/48/EC (CRD IV) requires institutions to manage IRRBB under the ICAAP/SREP framework.
• Article 124(5) mandates that supervisors take action if an institution's economic value declines by more than 20% of own funds due to a standard shock.
• Article 123 requires institutions to have sound and effective strategies for internal capital allocation.

Definition of IRRBB

• IRRBB refers to the risk to earnings and capital from adverse interest rate movements in the non-trading book.
• It includes:
  • Repricing risk: Mismatch in the maturity and repricing of assets and liabilities.
  • Yield curve risk: Changes in the shape and slope of the yield curve.
  • Basis risk: Differences in interest rate exposure due to different rate indexes.
  • Option risk: Risks from embedded options in financial instruments.

Market Practices

• Institutions use gap analysis, simulation techniques, and stress testing to assess IRRBB.
• The Asset and Liability Management (ALM) function is often responsible for IRRBB monitoring and control, especially in larger or more complex institutions.
• Some institutions use a centralised ALM function, while others may have a decentralised approach.

Supervisory Guidance

• Supervisors should ensure that the internal methodologies used by institutions are transparent and documented.
• They should periodically review the size of the standard shock based on interest rate levels and volatility.
• Supervisors may request additional information from institutions, especially when the impact of interest rate changes is significant.
• Peer group analysis and model benchmarking can be used to evaluate the effectiveness of an institution's risk management practices.

Proportionality and Flexibility

• The level of detail and prescriptiveness in the guidelines is adjusted based on the complexity and size of the institution.
• Institutions are expected to consider both earnings and economic value perspectives, with the latter being the primary focus of supervisory review.

Conclusion

The document provides a high-level framework for managing and supervising IRRBB, emphasizing proportionality, consistency, and flexibility. It highlights the importance of internal risk management systems and the role of supervisors in ensuring these systems are adequate and aligned with regulatory expectations. While it does not prescribe specific quantitative models, it encourages institutions to use appropriate methodologies and supervisors to evaluate the effectiveness of these systems in a proportionate and consistent manner.