Final Standards and Guidelines on Interest Rate Risk Arising from Non-trading Book Activities

On 20 October 2022 the European Banking Authority (EBA) published a set of guidelines and two draft Regulatory Technical Standards (RTSs) detailing revisions to the framework for capturing interest rate risks in the banking book (IRRBB).

The revisions update existing requirements by adding criteria to identify non-satisfactory internal models for IRRBB management, which come into force from 30 June 2023, and those used to assess and monitor credit spread risk in the banking book (CSRBB), which apply from 31 December 2023. The draft RTS on the IRRBB standardised approach sets out criteria to evaluate the risks arising from changes in interest rates that affect the economic value of equity (EVE) and net interest income (NII) from non-trading book activities as well as details of a simplified standardised approach for smaller and on-complex institutions. The final RTS sets out the modelling and parametric assumptions and the supervisory shock scenarios for supervisory outlier tests (SOT).

These mark an extension of the content in Basel requirements particularly on CSRBB which is only mentioned very briefly.