New Regulatory Developments for Interest Rate Risk in the Banking Book

Volker Leistikow

The aim of this chapter is to summarise common concepts that are widely used by banks to measure and to manage interest rate risk in the banking book (IRRBB). Furthermore, it gives an outlook on the future regulatory developments and its implications for the management of IRRBB.

One of the most important regulatory publications on IRRBB is the “Principles for the Management and Supervision of Interest Rate Risk” (Basel Committee on Banking Supervision 2004b, pp. 3ff). In this publication the Basel Committee defines the sources and effects of interest rate risk and it also establishes 15 principles with respect to the management of IRRBB. Following its transition into European legislation, the rules in the Basel Committee paper were further specified in the guidelines “Technical aspects of the management of interest rate risk arising from non trading activities under the supervisory review process”, published by the Committee of European Banking Supervisors (2006). In mid 2013 the CEBS’s successor organisation, the European Banking Authority (EBA) published a consultation paper proposing significant changes to the above-mentioned guidelines focusing on scenarios, stress-testing, me

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