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
February 3, 2023
Advocating on the EU deforestation regulation
What lessons can be learnt from a French diplomat from the XIX century?
January 11, 2023
ESBG responds to the ESAs call for evidence on greenwashing
Therefore, in the interest of customers, banks, saving banks and issuers of financial products, ESBG
October 5, 2022
Joint letter to Commissioner McGuinness on the EFRAG consultation regarding its first set of draft ESRSs
On 27 September, the ESBG, together with the European Banking Federation (EBF), the European Association of Co-operative Banks (EACB), Insurance Europe, Accountancy Europe, Business Europe and…
September 9, 2022
ESBG response to the EFRAG consultation on its first set of draft ESRSs calls to ensure levelled global playing field
In its response to the European Financial Reporting Advisory Group (EFRAG) public consultation on the first set of Draft EU Sustainability Reporting Standards (ESRSs), the European Savings and Retail…
September 7, 2022
EU Taxonomy minimum safeguards: Criteria for the application of external checks should be further defined
The European Savings and Retail Banking Group submitted its final response to the Platform for Sustainable Finance (PSF) consultation on its draft report on minimum safeguards (MS). In its response,…
August 3, 2022
International Sustainability Standards Board consultation on Sustainability Disclosures
The International Sustainability Standards Board (ISSB) has been established at COP26 with the purpose of developing a comprehensive global baseline of sustainability disclosures for the capital…
May 27, 2022
ESBG calls for more feasible rules on the new corporate sustainability due diligence
In its response to the European Commission call for feedback on the proposal for a Directive on Corporate Sustainability Due Diligence, the European Savings and Retail Banking Group (ESBG) suggests…
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…
March 3, 2022
Strengthening the quality of corporate reporting and its enforcement in the EU
The consultation aims to evaluate the impact of the EU framework on the three pillars of high quality and reliable corporate reporting: corporate governance, statutory audit and supervision. This…
February 25, 2022
European Commission Banking Package proposal
ESBG responded to the European Commission “have your say" consultation on the Banking Package proposal.