Basel Committee on Banking Supervision have published its latest paper on Interest Rate Risk (IRRBB). This paper details Interest Rate Risk principals updated since the consultation paper was published last year. The Committee has concluded that the heterogeneous nature of IRRBB would be more appropriately captured in Pillar 2.

Nevertheless IRRBB is set to become an increasing priority for regulators and risk managers as the Committee is recommending an enhanced Pillar 2 approach.

Banks are expected to implement the standard by 2018.

https://www.bis.org/bcbs/publ/d368.pdf

The Basel Committee at the Bank for International Settlements has just published (8th June 2015) its consultation document on a review of the regulatory treatment of interest rate risk in the banking book (IRRBB).

The BIS wants to strengthen the treatment of IRRBB to ensure that banks have appropriate capital to cover potential losses from their risks to changes in interest rates. Also, to limit any 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 BIS is seeking comments on two options for the capital treatment of interest rate risk in the banking book:

• a uniformly applied Pillar 1 measure for calculating minimum capital requirements, to promote greater consistency, transparency and comparability, thereby promoting market confidence in banks’ capital adequacy and a level playing field internationally;
• a Pillar 2 option, which includes quantitative disclosure of interest rate risk in the banking book based upon the proposed Pillar 1 approach, which would better accommodate differing market conditions and risk management practices across jurisdictions.

The outcome of this consultation may be expected to feed through – in due course – into amended EU capital rules and will therefore, impact all UK Banks and Building Societies. ALMIS® International are at the forefront of providing a dedicated solution to IRRBB through its market risk module. Banks are invited to make comment before 11th September 2015.

For more information, contact Jenna Haston on 0131 452 8898 or email [email protected]