Why risk managers don’t trust the EU’s new IRRBB test
And why there may never be a perfect way of assessing the risks of changes in net interest income
Throughout much of 2022, the European Banking Authority was busy assembling a brand-new test to help European Union supervisors monitor the risks that sudden movements in interest rates would pose to banks’ loan and deposit books. The EBA had shown a degree of bravery in taking up the task – other regulators have yet to draft tests to model the impact of rate shocks on net interest income (NII) – and in October it unveiled its final blueprint.
Job done? Well, not quite. Risk managers are not
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