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On 24 April 2024, there was published in the Official Journal of the EU (OJ), Commission Implementing Regulation (EU) 2024/855 of 15 March 2024 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/451 as regards rules on the supervisory reporting of interest rate risk in the banking book.

Commission Implementing Regulation 2021/451 specifies the uniform reporting formats and templates, the instructions and methodology on how to use those templates, the frequency and dates of reporting, the definitions and the IT solutions for the reporting referred to in Article 430(1) to (4) of the Capital Requirements Regulation (CRR).

The CRR has been amended by the CRR II (Regulation 2019/876) and the Capital Requirements Directive (CRD) V introduced certain new prudential requirements into the CRD IV. Implementing Regulation (EU) 2024/855 updates Implementing Regulation 2021/451 in light of these changes.

Next steps

The Implementing Regulation enters into force on the twentieth day following its publication on the OJ (14 May 2024).

It shall apply from 1 September 2024.

On 15 March 2024, the European Commission adopted an Implementing Regulation amending the implementing technical standards laid down in Implementing Regulation 2021/451 as regards rules on the supervisory reporting of interest rate risk in the banking book.

Commission Implementing Regulation 2021/451 specifies the uniform reporting formats and templates, the instructions and methodology on how to use those templates, the frequency and dates of reporting, the definitions and the IT solutions for the reporting referred to in Article 430(1) to (4) of the Capital Requirements Regulation (CRR).

The CRR has been amended by the CRR II (Regulation 2019/876) and the Capital Requirements Directive (CRD) V introduced certain new prudential requirements into the CRD IV. The Implementing Regulation that has been adopted by the Commission updates Implementing Regulation 2021/451 in light of these changes.

On 12 December 2023, the Basel Committee on Banking Supervision (Basel Committee) published a consultation on targeted adjustment to its standard on interest rate risk in the banking book (IRRBB).

The IRRBB standard requires banks to calculate measures of interest rate risk for their banking book exposures. These measures are based on a specified set of interest rate shocks for each currency for which the bank has material positions. The proposed adjustments are intended to give effect to a commitment to periodically update the calibration of the interest rate shock factors used in the standard.

The deadline for comments on the proposed amendments is 28 March 2024.

The review of the calibration of the IRRBB shocks began before the March 2023 banking turmoil. A Basel Committee report on the banking turmoil notes that there were fundamental shortcomings in basic risk management of traditional banking risks, including interest rate risk. It notes that the Basel Committee is pursuing a series of follow-up initiatives, including analytical work to assess whether specific features of the Basel Framework performed as intended during the turmoil and is assessing the need to explore policy options over the medium-term. Any policy proposals arising from this work would be subject to a separate consultation.

On 7 December 2023, the Basel Committee on Banking Supervision (Basel Committee) published a press release following the outcome of a meeting held virtually on 5 and 7 December 2023.

The headlines from the press release are that the Basel Committee:

  • Agrees to consult on targeted revisions to the standard on cryptoasset. The Basel Committee took stock of its review of various elements of the prudential standard for banks’ exposures to cryptoassets published in December 2022. It agreed to consult on potential targeted revisions related to the criteria for stablecoins to receive a preferential “Group 1b” regulatory treatment. The Basel Committee will also consult on various technical amendments to help promote a consistent understanding of the standard.
  • Agrees to consult on a recalibration of the interest rate risk in the banking book (IRRBB) standard. A consultation paper will be published this month. The consultation will propose updates to the interest rate shocks specified in the IRRBB standard to take account of interest rate movements since the standard was first published in April 2016.
  • Decides to develop potential measures to address window-dressing behaviour by some banks in the context of the framework for global systemically important banks. The Basel Committee will consult in 2024 on potential policy options aimed at reducing window-dressing behaviour. To help inform this work, the Committee will collect higher frequency data items.
  • Discusses risk management considerations associated with the transition to a low carbon economy and related physical risks.

On 20 October 2022, the European Banking Authority (EBA) published a new set of guidelines and two final draft Regulatory Technical Standards (RTS) specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions.

The new guidelines and draft RTS complete the onboarding into EU law of the Basel standards of IRRBB and are of crucial importance given the current interest rate environment. They have been developed on the basis of Articles 84(5), 84(6) and 98(5a) of the Capital Requirements Directive V.

Draft RTS on the IRRBB standard approach (SA)

The draft RTS specify a set of procedural aspects and applicable assumptions related to both the SA on Economic Value of Equity (EVE) and SA on Net Interest Income (NII), as well as for the respective simplified standardised approaches.

In summary, EVE is the discounted sum of all future cash flows, assuming a run-off balance sheet (which avoids the complexity of determining the applicable interest rates for the renewal of exposures). In contrast, NII is the forward-looking projection of interest income (and expenses) over a pre-defined time horizon (e.g., of up to one, two or three years). While both are based on notional repricing cash flows (interest payments or principal amounts of fixed rate instruments that mature or principal amounts of floating rate instruments that reprice) under EVE they are discounted to the present and under NII they are projected to the end of the NII horizon.

Draft RTS on IRRBB supervisory outlier tests (SOT)

The draft RTS specify the supervisory shock scenarios and modelling and parametric assumptions for the SOT on EVE and the SOT on NII as well as to provide a definition and calibration of the large decline for the SOT on NII.

Both sets of draft RTS will be submitted to the European Commission for endorsement following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

Guidelines on IRRBB and credit spread risk arising from non-trading activities (CSRBB)

The new guidelines will replace the current 2018 guidelines on technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review and evaluation process (SREP). The new guidelines maintain continuity with the 2018 guidelines as far as possible, while updating some elements, particularly the criteria to identify non-satisfactory internal models for IRRBB management and those to assess and monitor CSRBB.

In summary, the new guidelines provide the legal framework for institutions’ IRRBB internal systems and for the SOT calculations if not specified in the relevant RTS on SOT. The guidelines are also applicable, as regards the identification, management and mitigation of IRRBB, in case the internal systems are replaced by the use of the IRRBB SA, in which case the RTS on SA provide the necessary specifications for IRRBB evaluation aspects as well as for the purposes of SOT calculations if not specified in the RTS on SOT. The guidelines also provide the legal framework for assessing and monitoring CSRBB.

The guidelines will be translated into the official EU languages and published on the EBA website.  The deadline for Member State competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. Upon publication of the guidelines, the

2018 guidelines are repealed and replaced.

The guidelines will apply from 30 June 2023, except for the part on CSRBB, which will apply from 31 December 2023.

On 2 December 2021, the European Banking Authority (EBA) issued three consultations covering technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions. Specifically, the consultations cover:

  • Guidelines on IRRBB and credit spread risk arising from non-trading book activities (CSRBB). When finalised these guidelines will replace the current guidelines on technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process. The updated guidelines provide continuity to the current ones and include new aspects of the mandate. In particular, they specify the criteria to identify non-satisfactory internal models for IRRBB management and identify specific criteria to assess and monitor CSRBB.
  • Regulatory technical standards (RTS) on the IRRBB standardised approach specifying the criteria for the evaluation of IRRBB in case a competent authority decides its application in view of a non-satisfactory IRRBB internal system. The RTS also provide a simplified approach for smaller and non-complex institutions.
  • RTS on IRRBB supervisory outlier tests that specify the supervisory shock scenarios as well as the criteria to evaluate if there is a large decline in the net interest income or in the economic value of equity that could trigger supervisory measures.

The draft RTS and guidelines have been developed on the basis of Article 84(5), 84(6) and 98(5a) of the Capital Requirements Directive IV. The updated IRRBB framework for the EU, including some mandates attributed to the EBA, have been developed using as a starting point the 2016 IRRBB Basel standards.

The deadline for comments on each of the consultations is 4 April 2022.

On 10 November 2021, the European Banking Authority (EBA) published its first draft implementing technical standards (ITS) on Pillar 3 disclosure of institutions’ exposures to interest rate risk on positions not held in the trading book (IRRBB).

From 28 June 2021, Article 448 of the Capital Requirements Regulation (CRR) requires institutions to disclose quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non-trading book activities which are referred to in Article 84 and Article 98(5) of the Capital Requirements Directive IV.

The draft ITS developed by the EBA will complement the comprehensive Pillar 3 standards by amending Implementing Regulation (EU) No 637/2021 of 15 March 2021 with the objective to facilitate the institutions’ compliance to the disclosure requirements of Article 448 of the CRR. The standards are also fully in line with the Pillar 3 disclosure framework of the Basel Committee on Banking Supervision.

The final draft ITS were submitted to the European Commission for adoption.

On 28 May 2021, the European Banking Authority (EBA) issued a consultation on draft implementing technical standards (ITS) on Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book (IRRBB).  The EBA has developed the draft ITS in accordance with its mandate in Article 434a of the Capital Requirements Regulation (CRR). When finalised the draft ITS will amend Implementing Regulation (EU) No 637/2021 of 15 March 2021 with the aim of facilitating institutions’ compliance with Article 448 CRR.

The draft ITS put forward comparable disclosures that would allow stakeholders to assess institutions’ IRRBB risk management framework as well as the sensitivity of institutions’ economic value of equity and net interest income to changes in interest rates. The proposed standards will amend the comprehensive ITS on institutions’ public disclosures, in line with the strategic objective of developing a single and comprehensive Pillar 3 package that should facilitate implementation by institutions and further promote market discipline.

The deadline for comments on the consultation is 30 August 2021.

Interest rate risk in the banking book (IRRBB) is part of the Basel capital framework’s Pillar 2 (supervisory review process) and subject to the Basel Committee’s guidance set out in the 2004 Principles for the management and supervision of interest rate risk (the IRR Principles). The IRR Principles lay out the Basel Committee’s expectations for banks’ identification, measurement, monitoring and control of IRRBB as well as its supervision.

The Basel Committee has decided that the IRR Principles need to be updated to reflect changes in market and supervisory practices since they were first published. The Basel Committee has therefore published a document that contains an updated version that revises both the Principles and the methods expected to be used by banks for measuring, managing, monitoring and controlling such risks.

The key changes include:

  • more extensive guidance on the expectations for a bank’s IRRBB management process in areas such as the development of shock and stress scenarios as well as key behavioural and modelling assumptions to be considered by banks in their measurement of IRRBB;
  • enhanced disclosure requirements to promote greater consistency, transparency and comparability in the measurement and management of IRRBB. This includes quantitative disclosure requirements based on common interest rate shock scenarios;
  • an updated standardised framework, which supervisors could mandate their banks to follow or banks could choose to adopt; and
  • a stricter threshold for identifying outlier banks that has been reduced from 20% of a bank’s total capital to 15% of a bank’s Tier 1 capital. In addition, interest rate risk exposure is measured by the maximum change in the economic value of equity under the prescribed interest rate shock scenarios.

The banks are expected to implement the revised standards by 2018.

View Standards for interest rate risk in the banking book issued by the Basel Committee, 21 April 2016

The Basel Committee on Banking Supervision (BCBS) has published a consultative document, Interest rate risk in the banking book.

In the consultative document the BCBS sets out two options for the regulatory treatment of interest rate risk in the banking book (IRRBB). The first approach is a standardised Pillar 1 (minimum capital requirements) approach which the BCBS believes would promote greater consistency, transparency and comparability. The second approach is an enhanced Pillar 2 approach which the BCBS believes would better accommodate differing market conditions and risk management practices across jurisdictions. Both approaches would be applied to large internationally active banks on a consolidated basis. Supervisors would have the national discretion to apply the IRRBB framework to other non-internationally active institutions.

The BCBS is seeking comments on both approaches. The deadline for comments is 11 September 2015. Continue Reading Interest rate risk in the banking book – consultative document