Europe’s new IRRBB test: the riddle with no answer
A proposed compromise on net interest income test is not scientific, but exact calibration may be impossible
Financial regulation is a process of trial and error. Pull a lever too far and the system lurches out of balance. Push it back the other way and you risk overcorrecting.
In their latest rules for interest rate risk in the banking book, or IRRBB, European regulators face just such a predicament.
They have adjusted a threshold in a test meant to identify banks whose earnings from net interest margins are most at risk from shock movements in interest rates. Lenders that exceed the threshold will
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
EU banks fear Brexit battle over FRTB internal models
Bank of England approach looks easier, but that may not make much difference to model uptake
Eurex clearing chief calls for active account carve-outs
Isda AGM: Müller says EU clearing thresholds should exempt market-making and US client trades
The regulator that troubleshoots first, asks questions later
Canada’s bank watchdog aims to intervene early to tackle burgeoning risks, even at the expense of “perfect” regulatory decisions
Banks dispute EBA’s new threshold for IRRBB test
Banks say new proposal for identifying outliers on net interest income is still too severe
Investor wish-list offers no quick fix for Swiss CoCos
Some want bond doc overhaul to clarify bail-in risk, but sovereigns can always change the rules
SVB failure signals Fed’s need for a speed rethink
Rapid transition to large-bank bracket left supervisors flat footed on rate risk
Doubts mount over BoE proposal to dilute bank liquidity rules
Before SVB collapse, UK suggested loosening NSFR reporting for smaller banks
Fed’s discount window comes in from the cold
BTFP offers zero haircuts on collateral, but long-term usage is not recommended
