On April 21st 2016 The Basel Committee on Banking Supervision (BCBS) issued the final standards for Interest Rate Risk in the Banking Book (IRRBB).
The revised standards consist of supervisory expectations for banks’ identification, measurement, monitoring and control of IRRBB as well as their supervision. The key enrichments to the 2004 Principles include:
- Broader instructions for a banks’ IRRBB management process in areas such as the improvement of interest rate shock scenarios, as well as crucial behavioral and modelling expectations that need to be considered by banks when measuring IRRBB;
- Augmented conditions to boost consistency, transparency and comparability when measuring and managing IRRBB. The requirements include quantitative disclosure conditions based on prevalent interest rate shock scenarios;
- A modernised and regulated framework which allows supervisors to command banks to follow or adopt; and
- Rigorous guidelines for identifying outlier banks, which have reduced 20% of a bank’s total capital to 15% of a bank’s Tier 1 capital.
The primary objection of the issued standards is to make changes in the 2004 Principles market and supervisory practices which are particularly relevant for the current low interest risk rates.
The revised standards are expected to be implemented in 2018.