On June 8, 2015, the Basel Committee on Banking Supervision published a consultation paper on the risk management, capital treatment and supervision of interest rate risk in the banking book. The proposals expand upon, and are intended to ultimately replace, the Basel Committee’s 2004 Principles for the Management and Supervision of Interest Rate Risk. The objectives of the proposals are to help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates and to 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. The published proposal presents two options for the capital treatment of interest rate risk in the banking book: (i) a Pillar 1 (Minimum Capital Requirements) approach; and (ii) an enhanced Pillar 2 approach. Comments to the proposal are due by September 11, 2015.
The consultation document is available at: http://www.bis.org/bcbs/publ/d319.pdf and the 2004 Principles for the Management and Supervision of Interest Rate Risk is available at: http://www.bis.org/publ/bcbs108.pdf.