EBA IRRBB Guidelines

EBA IRRBB Guidelines

EBA IRRBB Guidelines. On the 31st of October, the European Banking Authority published a consultation paper with updated guidelines on the management and measurement of interest rate risk in the banking book. Here are the main take-aways from the newly published standards.

Implementation

The BCBS guidelines are implemented in two phases:

  • Update of EBA guidelines
  • Technical standards

Application date: 31-12-2018

added guidelines

aa

Risk measurement

Exposure to IRRBB should be measured in terms of Economic Value and Earnings. Earnings measurement includes variations in fair value components of the banking book.

Explicitly added to the scope are:

  • Credit spread risk
  • Pension assets and liabilities
  • Non-performing exposures

aa

risk measurement

a

Standard outlier test

The parallel 200 basis point scenario is maintained for supervisory purposes. The six BCBS scenarios are also included as an Early Warning Signal. Cash flows used in the calculation should include or exclude commercial margins based on the method used for risk hedging.

There is no Early Warning Signal introduces in relation to earnings measurement.
Economic value is based on risk free discounting.

aa

200bp shock

aa

Yield curve floor

The calculations of supervisory measures include a yield curve floor for all currencies. The floor is linear upward sloping from the overnight rates to the 30 years tenor.

aa

yield curve floor

To see the entire info-graphic, please click here.