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.
The BCBS guidelines are implemented in two phases:
- Update of EBA guidelines
- Technical standards
Application date: 31-12-2018
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
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.
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.
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