BCBS additional Pillar 2 Guidance on IRRBB
The BCBS has published a consultation paper proposing additional Pillar 2 guidance on IRRBB, after it found shortcomings in banks’ basic risk management when inflation and interest rate volatility rose. Banks would validate and monitor their IRRBB models through backtesting and early warning indicators. This applies in particular to their forecasts for non-maturity deposits and to their models for mortgage prepayment and deposit pricing. Their stress testing would include multi-level rate shocks and sensitivity to key modelling assumptions, and would show how far they rely on specific deposit segments. Banks would also calculate short- and medium-term NII sensitivity indicators because the long run-off horizon of the supervisory outlier test can hide near-term effects on earnings. They would report their limits and hedging to supervisors, together with embedded gains and losses on securities held at amortised cost and the effect on capital headroom. Supervisors would compare each bank with a reference group of peers to identify excessive IRRBB earlier and act in stages.
Consultation end: 9 Feb 2027
