Zanders IRRBB Quick Scan
In April 2016, the Basel Committee on Banking Supervision (BCBS) issued the final standard on Interest Rate Risk in the Banking Book (IRRBB). In this standard, which will be the basis for new EBA guidelines, the BCBS recognizes that IRRBB is best captured in Pillar II due to the heterogeneous nature of IRRBB among banks.
Nevertheless, the BCBS allows national supervisors to mandate banks under their jurisdiction to follow the standardized approach for IRRBB. According to the BCBS, banks have to implement the new standard by 1 January 2018. In short, the new standard will require your bank to:
- Adhere to the nine principles in which the BCBS’s expectations have been laid down for the identification, measurement, monitoring and control of IRRBB;
- Monitor, assess and report IRRBB both from an economic value and an earnings risk perspective. The risks under both perspectives need to be evaluated for a range of shock and stress scenarios, including the six standard interest rate scenarios. In addition, the greater guidance on the key behavioral modeling assumptions when measuring interest rate risk needs to be met;
- Comply with stricter guidelines on governance and risk frameworks, model risk, disclosure aspects and ICAAP, as well as more restrictive capital requirements for IRRBB.
We offer your bank an IRRBB Quick Scan that assesses your bank’s IRRBB framework. Based on a review of available model documentation, risk reports and interviews with your bank’s risk specialists, the scan provides an independent and objective assessment of your bank’s IRRBB implementation relative to the new IRRBB principles and best-market practices. After having assessed all principles and accompanying requirements, we will deliver a report that states per IRRBB principle whether your bank’s IRRBB framework is above, at or below the new minimum standards of the BCBS. For the parts of the IRRBB framework that do not meet the minimum standards, recommendations will be presented in the report (including a level of priority that accounts for proportionality and materiality).
We can also support your bank with the implementation or enhancement of your (existing) IRRBB framework. This also includes the implementation of the standardized approach when required by your local supervisor (or if your bank chooses to adopt it).
With over 25 successful projects, Zanders has gained significant experience in supporting clients on IRRBB modeling and model validation. The Zanders IRRBB Quick Scan, which combines our knowledge on best-market practices and the latest regulatory developments, will provide your bank with valuable insights in the measurement and management of interest rate risk as well as the required risk governance.
If your bank is interested in the IRRBB Quick Scan and/or support with implementing or enhancing your IRRBB framework, please contact Sjoerd Blijlevens or Martijn Wycisk.
More articles about IRRBB:
Banks alarmed by short timeline and opaque supervisory use of IRRBB stress test (risk.net)
IRRBB capital – in the new regulatory environment
Regulatory challenges of IRRBB
Final IRRBB standards by BCBS
Links to Client cases:
A new interest rate framework for BNG Bank
All energy into private banking