Basel Committee revised standards (PDF 690 KB) for IRRBB, to be implemented by 2018.
The main “news” here relates to what the Basel Committee has not done – IRRBB has not been made a prescriptive element of Pillar 1 capital requirements, and therefore remains an element of the more judgemental and discretionary Pillar 2 capital requirements.
However, the revised and tougher standards – combined with the efforts of supervisors (in particular the European Central Bank) to apply Pillar 2 on a more consistent basis and the risks inherent in a low interest rate environment – will impart renewed impetus to reflecting IRRBB in Pillar 2 capital requirements and will generate a greater supervisory focus on how well banks manage (identify, measure, monitor and control) interest rate risk.
The key enhancements to the 2004 standards include:
There is a strong presumption for supervisory and/or regulatory capital consequences if the supervisory review a bank’s IRRBB exposure reveals inadequate management or excessive risk relative to a bank’s capital, earnings or general risk profile.