The Basel Committee has issued revised standards for IRRBB, to be implemented by 2018.
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.