ECB sensitivity analysis of IRRBB
  • Monday, 24 April 2017

ECB sensitivity analysis of IRRBB

As a response to the latest ECB stress test, Risk.net published an article for which one of our senior managers, Erik Vijlbrief, was asked to share his experience on challenges faced by banks in this stress test. The stress test, which had a tough five weeks timeline, focused on six different interest rate scenarios. This might sound trivial to execute, but each scenario required further slicing and dicing to e.g. behavioural modelling assumptions and derivatives hedging, resulting in a large number of scenarios. The main challenge faced by banks is to get the information ready in time as many banks are dependent on information in local systems.

The ECB announced that the outcome of the stress test will be used as an input for each bank’s supervisory review and evaluation process (SREP) in July, potentially leading to an add-on for Pillar 2 guidance (P2G) supervisory capital. An IRRBB Pillar 1 capital charge was recently removed from the plans of the Basel Committee on Banking Supervision, arguing that it is not suitable for a standardised approach. However, the stress test resulted in many concerns amongst bankers that a capital charge for IRRBB will be reintroduced by means of a (Pillar 2) back door.

The full article can be found on Risk.net.

For more information, please contact Erik Vijlbrief on +31 35 692 89 89 or via email.

More articles about IRRBB:

IRRBB capital in the new regulatory environment
Regulatory changes on IRRBB
Final IRRBB standards bij BCBS
IRRBB, many developments, little concensus