On October 6, 2015, the European Banking Authority published final translations of its Guidelines on the management of interest rate risk arising from non-trading activities, also known as interest rate risk in the banking book or IRRBB, which is the risk to firms arising from adverse movements in interest rates. Under the Capital Requirements Directive, national regulators must require a firm to take measures if its economic value declines by more than 20 percent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points which is termed supervisory “standard shock.” National regulators must also take steps when a change occurs, as defined by the EBA in these Guidelines. The Guidelines set out the definition of such change and the methods for the calculation of the outcome of the supervisory standard shock, which is the shock applied to a firm’s portfolio to determine the impact on the economic value of the firm, as well as specify the identification, management and mitigation of IRRBB. The Guidelines apply from January 1, 2016. They will repeal the Guidelines of the Committee of European Banking Supervisors published in 2006. The Guidelines are addressed to national regulators and relevant credit institutions and investment firms. National regulators must notify the EBA by December 7, 2015 as to whether they comply or intend to comply with the Guidelines.
The Guidelines are available at: http://www.eba.europa.eu/documents/10180/1084098/EBA-GL-2015- 08_EN_GL+on+IRRBB.pdf/1a14372b-f165-4163-a91a-22770d1d938a.