How Finalyse can help

IRRBB

MANAGING YOUR INTEREST RATE RISK RIGHT

In the current economic and regulatory environment, a well-designed IRRBB framework can be essential for the success of your business models.

Following a long period of record lows, the recent rise in interest rates has been the fastest in decades. Amid geopolitical tensions and economic uncertainties, a volatile interest rate market will likely persist for an extended period, requiring banks to manage their interest rate risk very carefully.

In parallel, Basel and the EU have stepped up the regulatory game. The latest EBA guidelines from 2022 deepen the Pillar 2 requirement for managing the interest rate in the banking book (IRRBB) and monitoring the credit spread risk in the banking book (CSRBB). This framework still imposes a dual view on interest rate risk, aiming to protect capital (Economic Value - EV) and profitability (Net Interest Income - NII). However, heightened attention is paid to modelling behavioural features present in non-maturity deposits (NMDs) and instruments such as mortgage loans subject to prepayment or early redemption. Regulatory Technical Standards (RTS) have detailed the standardised approach that banks can use or that supervisory authorities can impose. RTS has also complemented the existing supervisory outlier test (SOT) on EV with a new SOT on NII that did not exist in the Basel framework. Finally, implementing technical standards (ITS) released in 2021 and 2023 lays down requirements for the disclosure and reporting of IRRBB.

In this complicated context, relying on seasoned experts with a proven track record is crucial. Finalyse offers a comprehensive modular approach that ensures regulatory compliance. Our IRRBB service spans governance data, analytics, modelling, and reporting issues. It extends from identifying IRRBB/CSRBB risks and assessing potential gaps to designing measurement and monitoring solutions. We also tackle the automation of risk processes, the framing of internal controls and the design of management information systems, enabling a comprehensive, solid governance of IRRBB.

How does Finalyse address your challenges?

We bring in the experience of a multidisciplinary team of experts with extensive exposure to regulatory and non-regulatory models. Our models allow a state-of-the-art analysis of balance sheet dynamics, covering optionalities on assets (prepayment risk, cap/floors, etc.) and liabilities (non-maturity deposits).

We support you in identifying gaps between regulatory and internal requirements and propose a remediation plan, designing your interest rate risk framework to ensure regulatory compliance.

We provide a solid and transparent implementation of the IRRBB framework tailored to your institution's complexity. Through increased process automation, we ensure timely calculations, mitigating operational risks associated with manual interventions. This allows your team to focus on tasks of high-added value.

We integrate your interest rate risk models into your institution's risk appetite framework and business decision process. We ensure alignment with SREP expectations and support stress testing to develop a comprehensive risk strategy.

We bring you tailored solutions to manage your interest rate risk, including the design of hedging strategies or the elaboration of fund transfer pricing (FTP) approaches. We leverage our proven track record and hands-on experience in developing or validating ALM frameworks.

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How does it work in practice?

Key Features

Comprehensive IRRBB and CSRBB Solutions - A balanced combination of quantitative expertise, business insights, and regulatory knowledge to meet all your interest rate risk and credit spread risk management needs.
Tailored Methodologies with Full Transparency - Custom-built IRRBB models covering repricing risk (or gap risk), basis risk and option risk, designed with the right level of sophistication for your institution, supported by transparent, easy-to-understand presentations and dashboards.
Modelling of Optionality and Non-Maturity Deposits - Specialized in modelling non-maturity deposits (NMDs), mortgage loan prepayment and early redemption risks, including replicating portfolio approaches and deposit beta measures, for a complete understanding of maturity mismatch and risk exposure.
Regulatory Compliance and Best Practices -Stay ahead of Pillar 2 and SREP requirements by proactively approaching European regulatory developments and local initiatives, ensuring your interest rate risk models remain compliant and effective.
Advanced Stress Testing and Risk Management - Facilitate robust stress testing and outlier tests to assess economic capital impact and improve your institution’s overall risk strategy for both market and interest rate risks in the banking book.

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Our subject matter experts

François-Xavier Duqué

Principal Consultant - Expert in FRTB / IRRBB / ALM / Market Risk in Solvency II and ORSA

François-Xavier is a Principal Consultant with advanced expertise in Financial Markets, ALM and Risk Management, covering both banks and insurance companies. On the banking side, François-Xavier is a practice leader on Valuation, IRRBB, FRTB, VaR, Initial Margin and Counterparty Risk, well acquainted with the regulatory requirements and the market practices surrounding market risks. On the insurance side, François-Xavier has extended experience in the regulatory treatment of financial instruments, ORSA, and hedging balance sheets against interest rate, credit spread and inflation risks.

Augustin de Maere

Principal Consultant - Expert in IRRBB / Machine Learning Model Validation Framework

Augustin de Maere is a Principal Consultant based in Finalyse Brussels, leading the Market Risk & ALM practice with François-Xavier Duqué, with a specific focus on Interest Rate Risk and Economic Capital modelling. He has been involved in the development or validation of several interest rate models, covering all the aspects of the model chain, from interest rate scenario generators to the calibration of behavioural models (non-maturity deposits, …) and the building of portfolio revaluation engine.

David Boavida

Senior Consultant - Expert in IRRBB / ALM / Market and Liquidity Risk

David Boavida is a senior consultant with extensive experience in modelling and managing Market and Liquidity Risk and a solid foundation in Asset and Liability Management (ALM). In particular, his main areas of expertise lie within IRRBB & CSRBB. His technical skills cover a range of multi-purpose programming languages, including Python, R and MATLAB. David also has comprehensive knowledge and experience in Basel III Regulatory Reporting, Liquidity and Funding Risks and Stress Testing.