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Interest Rate Risk in the Banking Book (IRRBB) regulations have been put in place globally to standardize and strengthen how institutions manage interest rate risk, specifically regarding earnings and economic value. Updates occur to further strengthen the rules and harmonize how they are applied across different jurisdictions to embed greater resilience in the global financial system.

Recently the regulations and deadlines for IRRBB were updated, primarily by the European Banking Authority (EBA) and the Basel Committee on Banking Supervision (BCBS).

The Regulations

Europe

EBA IRRBB Reforms (2022-2024)

• Inclusion of IRRBB in DPM 3.4 XBRL Regulatory Reporting Templates
• Economic Value of Equity (EVE) and Net Interest Income (NII): Introduction of standard models
• Supervisory Outlier Tests (SOT): Updated tests for EVE and NII
• Technical Standards

Global

Basel Committee on Banking Supervision (BCBS): BCBS 368, d561 Consultation on Recalibration of shocks for interest rate risk in the banking book.

Who has to comply with IRRBB?

1. Banks and Credit Institutions: commercial banks, savings banks, cooperative banks and other institutions that accept deposits and make loans.
2. Investment Firms: firms that engage in banking activities.
3. Holding Companies: firms that own one or more banks or financial institutions.
4. Financial Conglomerates: organizations that include banking, insurance and investment services.
5. Central and International Banks: institutions operating across multiple jurisdictions.
6. Smaller Financial Institutions: firms with moderate risk profiles.
   

Are you ready?

The regulations impose several challenges to organizations that may not have software solutions to manage the calculations and various submission requirements.

Deadlines are tight and resources are scarce. Navigating the regulations, gathering data, understanding and managing risks, monitoring changes, and then submitting to the authorities requires specific knowledge and time from teams.

For example, requirements include:

• Aggregation of Interest Payments
• Risk-Free Yield Projections
• Commercial Margins
• Behavioral Parameters

Challenges are particularly difficult if teams need to rely on manual processes, spreadsheets or in-house legacy systems. Plus, not all teams are equipped with the knowledge to efficiently and effectively meet the requirements.

Contact us today to find out how we can help.