Interest rate risk in the banking book - consultative document
The consultative document on the risk management, capital treatment and supervision of interest rate risk in the banking book (IRRBB) expands upon and is intended to ultimately replace the Basel Committee's 2004 Principles for the management and supervision of interest rate risk.
The Committee's review of the regulatory treatment of interest rate risk in the banking book is motivated by two objectives: First, to help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates. This is particularly important in the light of the current exceptionally low interest rate environment in many jurisdictions. Second, 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 paper presents two options for the capital treatment of interest rate risk in the banking book:
(i) the adoption of a uniformly applied Pillar 1 measure for calculating minimum capital requirements, which would have the benefit of promoting greater consistency, transparency and comparability, thereby promoting market confidence in banks' capital adequacy and a level playing field internationally; and
(ii) 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.
Comments should be uploaded here by Friday 11 September 2015. All comments will be published on the website of the Bank for International Settlements unless a commenter explicitly requests confidential treatment.