EMF-ECBC responds to BCBS consultation on interest rate risk in the banking book
15 September 2015
The EMF-ECBC submitted its response to the BCBS' Consultation Document on IRRBB, agreeing that banks should identify, measure and monitor IRR and hold appropriate capital against it, and endorses reliance on the economic value of equity.
The Basel Committee on Banking Supervision’s (BCBS) review of the regulatory treatment of Interest Rate Risk in the Banking Book (IRRBB) is intended to:
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help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates; and
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limit capital arbitrage between the trading book and the banking book, as well as between banking book portfolios that are subject to different accounting treatments.
In its response, the European Mortgage Federation - European Covered Bond Council (EMF-ECBC) agrees that banks should identify, measure and monitor IRR and hold appropriate capital against it, and endorses reliance on the economic value of equity. However, in doing so the EMF-ECBC highlights the following points:
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Cover assets & covered bonds with certain characteristics should be exempted from supervisory reporting.
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The capital treatment for IRRBB should remain in Pillar 2 and there should be no Pillar 1 fall-back solution for Pillar 2 (hybrid approach).
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Credit spread risk should be considered under the credit risk and not taken account of in Pillar 2.
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Positions with behavioural options related to non-retail customers should be subject to internal models.
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Public disclosure of the results of stress tests/shock scenarios and institution-specific parameters go beyond the confidence principle which applies to Pillar 3.
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The requirements regarding the IRRBB measurement systems and models are disproportionate.
In commenting on the BCBS consultation, Luca Bertalot, EMF-ECBC Secretary General, stated:
“In light of the issues raised by the Industry, we recommend that the management of IRRBB be based on the EBA Guidelines on the Management of Interest Rate Risk arising from Non-Trading Activities, which apply in any case from 2016 in the EU”.
© EMF
