03 October 2006

CEBS technical guidelines on interest rate risk in banking book

CEBS published the final technical guidance on the application of the supervisory review process in relation to interest rate risk in the banking book. The paper sets out technical guidelines applicable to “interest rate risk arising from nontrading activities” and puts the emphasis on highlevel guidance, some of which is addressed to institutions and some to supervisors. It sets out general considerations including current international thinking, a definition of what the IRRBB should cover, the relevant legal equirements of the Directive 2006/48/EC, and a summary of current market practices

The paper sets out a guidance on what the supervisors should expect to see in the ICAAP, and the corresponding guidance to supervisors in conducting the Supervisory Review and Evaluation Process in relation to the ICAAP. Supervisors will require institutions to show that their internal capital is commensurate with the level of the interest rate risk in the banking book.

In relation to nontrading activities, CEBS proposes a common definition of the “standard shock” set out in Article 124(5) of the Directive 2006/48/EC to achieve a common standard which supervisors can apply consistently across the EU.

If necessary, national supervisors can set a shock of a different magnitude than the one derived by the calculation method of IRRBB 5. In the context of the CEBS guidelines on supervisory cooperation for crossborder banking and investment firm groups (GL09), Coordination and dialogue under the aegis of the consolidating supervisor through operational networking will be crucial to ensure that commonality over time.

Respondents to the forgoing consultation raised concerns on the level of details and prescriptiveness of the guidelines. CEBS has addressed these comments by clarifying the proposed guidelines and readjusting the level of prescriptiveness.

Guidelines
Feedback document
 

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