Developing a proportionate, fair and efficient IRRBB framework in the EU
On 4 April 2022, ESBG responded to the EBA consultation specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions.
Our response stresses that the current framework is too complex and challenging to implement for smaller institutions with non-complex operations and limited market risk exposure. Although we need a sufficiently prudent management of interest rate risk amongst all EU/EEA banks, the framework should also consider the peculiarities of national banking models and the interest risk inherent in national markets.
As regards the definition of large decline for the purpose of the net interest income (NII) supervisory outlier test, the proposed “Option B” referring to a cost related metric seems more aligned with established internal interest rate risk management methodologies. Yet, the removal of the administrative expenses term, which generates volatility and complexity, is pivotal to favouring this option.
Considering the limited ability of the standardised approach to capture adequately the exposure of each entity to IRRBB, any obligation to use it should be conditional on the competent authority having demonstrated that it would be more relevant than the internal model approach (IMA) it would replace.
In the area of credit spread risk arising from non-trading book (CSRBB), the scope of the framework is too extensive as it includes all instruments. On the contrary, credit spreads, which are based on a market perception, should not apply to illiquid and non-market instruments whose value does not change according to these market spreads. The scope should thus be restricted to instruments that have a clear market price transparency andare easily tradable on a large and deep enough market, because only these assets are subject to the market perception. Moreover, a clear definition of the terms “market credit spread” and “market price of credit risk” is needed.
To avoid different interpretations and ensure a level playing field, it should be stated explicitly in the Guidelines, that non-marketable instruments, such as loans to customers, should be generally exempted from CRSBB as they are covered by the bank’s credit risk management framework.
Finally, the new IRRBB standardised methods for the economic value of equity (EVE) and NII seem to be very calculation intensive but, at the same time, less granular than many banks’ internal models. We therefore stress that both banks and supervisors may lose interest rate risk management insights if banks are required to apply them by their national authorities.
Download
related
May 17, 2022
Data Act – An open data economy should be multilateral and cross-sectoral
ESBG's response to the European Commission consultation on the proposed Data Act calls for a horizontal regulatory approach to establish a consistent and harmonised rules for all sectors. ESBG is the…
May 12, 2022
Overtime for Ukrainian war refugees: DSGV employees donate over 100,000 euros through extra work
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
May 12, 2022
Stand with Ukraine: Erste family provides extensive humanitarian aid
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
May 12, 2022
The German Savings Banks Association ( DSVG ): More than 100,000 accounts already opened for Ukrainian war refugees
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
May 12, 2022
CaixaBank has been leveraging its network of branches in Spain to assist asylum seekers and refugees fleeing Ukraine
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
May 12, 2022
Ukraine: ESBG members reaffirm their social responsibility
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
April 28, 2022
ESBG response to ESMA’s consultation on guidelines of MiFID II suitability requirements
ESBG's response to the European Securities and Market Authority (ESMA) consultation on some MiFID II sustainability aspects. European banks calls for clear procedures and to avoid unnecessary…
April 4, 2022
Developing a proportionate, fair and efficient IRRBB framework in the EU
On 4 April 2022, ESBG responded to the EBA consultation specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions.
March 24, 2022
ESBG members waive bank transfer costs to support Ukrainian people
European Savings and Retail Banking Group members are standing in solidarity with people in need in Ukraine.
March 7, 2022
European Commission review of the Mortgage Credit Directive
SBG sent its response to the European Commission questionnaire on what to include in the upcoming Review of the Mortgage Credit Directive (MCD).