We’re all outliers now: Europe’s unflattering IRRBB test
Banks, fearing overreaction from supervisors, urge European Commission to reject NII-based assessment
When the European Banking Authority announced a new supervisory test of banks’ exposure to interest rate shocks in October 2022, its proposals appeared timely. Central banks were hiking interest rates, which had the potential to reveal pricing mismatches in loan and deposit books.
However, the EBA’s calibration of the test, which will measure interest rate risk on the banking book (IRRBB), took place before the rate rises. Banks are now worried the framework could be much more severe than the
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