IRRBB
After the entry in force of the 2019 EBA guidelines on IRRBB, the regulatory expectations are still strengthening up. On the Pillar I side, the guidelines have been translated in Regulatory Technical Standards, and the standardised supervisory outlier tests are being revised by the European Banking Authority. On the Pillar II side, new requirements are introduced, among other which the modelling of credit spread risk
Moreover, the interest rate environment is becoming more uncertain than it ever was since more than 20 years, and all the internal models will probably be put to a live test in an environment they never experienced.
In this context, it is especially important to rely on seasoned experts, with a proven track record of developing and validating IRRBB solutions. Our IRRBB service is a comprehensive modular approach guaranteeing compliance and addressing data, analytics, modelling, and reporting issues. It extends from identifying the interest and credit spread risks and assessing the potential gaps, to designing measurement and monitoring solutions. In addition, it tackles the automation of risk processes, the framing of effective internal controls and the design of management information systems, ensuring a strong comprehensive governance of IRRBB.
How does Finalyse address your challenges?
We help in the identification of the gaps compared to the regulatory and internal requirements, and we propose a remediation plan, by designing a complete and transparent interest rate risk framework.
We bring in the experience of a multidisciplinary team of experts with extensive exposure to regulatory and non-regulatory models. We help in enhancing the models to provide a state-of-the-art analysis of the balance sheet dynamics, with all its optionalities both on the assets (prepayment risk, cap/floors, …) and the liability (non-maturity deposits) side
We provide a solid and transparent implementation of the IRRBB framework, tailored to the complexity of your institution. By increasing the automation of the process, we ensure timeliness of the calculations, and we reduce the operational risks associated with lengthy and repetitive manual interventions, allowing your team to focus on tasks of highly added value.
Finally, we ensure the integration of your interest rate risk models in the institution’s business decisions.
In the current economic and regulatory environment, a well-designed IRRBB framework can prove essential for your business models’ success. With its proven track record and hands-on experience in developing or validating IRRBB and ALM projects, Finalyse brings you tailored solutions for managing your interest rate risk.
Key Features
- A healthy mix of quantitative, business and regulatory profiles for all your interest rate risk needs.
- Methodologies tailored to your institution’s needs, with the adequate sophistication level. Transparency and explainability of the models through adequate presentations and dashboards.
- Keeping tracks of the European regulatory progression on IRRBB models as well as more local initiatives to ensure we have the best practices in place.
What Finalyse experts say
This post demonstrates step-by-step a possible way to conduct Non-Maturity Deposit Modeling. It shows the practical challenges, taking as an example the overnight deposit rates in Hungary. In the current low-interest-rate environment, the modelling of non-maturity deposits has attracted interests from Banks. These models are used for critical purposes in banks such as the management of the interest rate risk of the balance sheet, or in their earnings, as it is now also expected from supervisory authorities. Finally, they are also used to determine a transfer price for deposits, to retribute the business lines in charge of collecting the deposits appropriately.
ReadIn December 2021, European Banking Authority published three consultation papers, including the guidelines on Interest Rate Risk in Banking Book (IRRBB) and Credit Spread Risk in The Banking Book (CSRBB), the regulatory technical standards (RTS) on the supervisory outlier test (SOT) and the RTS on the standardised approach (SA) and the simplified standardised approach (S-SA) for the economic value of equity (EVE) and the net interest income (NII). The 4-month-long consultation period finished on the 4th of April 2022. This article provides an overview of the first of the three consultation papers, the guidelines on CSRBB and discusses the methodology for the monitoring and assessment of CSRBB.
Read