Ninterest rate risk in the banking book pillar 1

Section ii presents the proposal for a standardised pillar 1 capital framework for irrbb. Bcbs proposals for interest rate risk in the banking book irrbb. Without the prescriptive pillar i rules, irrbb practices have widely diverged. Earlier drafts attempted to establish a standardised pillar 1 capital charge for irrbb but members were unable to agree on this. Recall that the interest rate risk on the banking book are within pillar 2 and as such they are not linked to banks capital requirements. Interest rate risk in the banking book irrbb bankinghub. Video would be covering about regulatory of interest rate risk in banking books. Interest rate risk in the banking book irrbb interest rate risk in the banking book is the risk posed by adverse movements in interest rates that cause a mismatch between the rates banks set on customer loans and on deposits. Any changes in interest rates have an impact on the present value of future cash flows on the bank. The following statement was released by the rating agency london, april 28 fitch the basel committee on banking supervisions final standards on. The interest rate risk booklet applies to examinations of community banks. In the present value perspective, the risk is quantified as an economic value change of the total banking book cash flow in case of changes in the yield curve. On the 3rd of june 2016, marcus evans held a webinar entitled interest rate risk in the banking book in partnership with oracle for their global financial market webinars portfolio.

Banks in category 1 and 2 will need sophisticated models to meet requirements, but smaller banks also need models. Interest rate risk in banking book irrbb refers to the current or prospective risk to a bank s capital and earnings arising from adverse movements in interest rates that affect banking book positions. Below we list some areas required for all banks and where a modelling approach could bring transparency and a justification for assumptions applied. Interest rate risk in the banking book irrbb is part of the basel capital frameworks pillar 2. Members treasury consulting llp pleased to present video titled interest rate risk in bank books irrbb.

The pillar 3 disclosure requirements provided in the new bcbs standards on. Interest rate risk in the banking book irrbb definition. The standards reflect changes in market and supervisory practices since the principles were first published in 2004, which is particularly pertinent in light of the current exceptionally low interest rates in many jurisdictions. Standards on the interest risk in the banking book irrbb. Until now, any capital requirement against irrbb has been included as an addon under pillar 2 capital requirements.

A stricter threshold for identifying outlier banks, which is has been reduced from 20% of a banks total capital to 15% of a banks tier 1 capital. This is known as interest rate risk in the banking book or irbb. The interest rate risk in banking book refers to the risk to a banks capital and earnings arising from adverse movements in interest rates that affect banking book positions. What is interest rate risk in the banking book irrbb. Nii, on the other hand, is always based on cash flows at client rates and thus represents total nii. Interest rate risk in banking book irrbb refers to the current or prospective risk.