[This section should be read in conjunction with CEBS Guidelines on Technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process, 3 October 2006 (see http://www.cebs.org/getdoc/e3201f46-1650-4433-997c-12e4e11369be/guidelines_IRRBB_000.aspx)]

1. For the purposes of these annexes, interest rate risk is the exposure of institutions' positions to adverse movements in interest rates. For the purposes of this Annex, positions in the banking book only are considered, as positions in the trading book are considered as an element of market risk and subject to the market risk stress tests (see Annex 1 of these guidelines). Interest rate risk includes current and future effects on the institution's earnings and capital.

Applicable to all institutions

2. All sources of interest rate risk in the banking book are relevant for stress testing interest rate risk in the non-trading book, namely,` re-pricing risk, yield curve risk, basis risk and option risk. Pursuant to Article 124(5) of the CRD, institutions must assess their exposures to the interest rate risk arising from non-trading activities. Should the economic value decline by more than 20% of an institution's own funds as a result of a sudden and unexpected change in interest rates, supervisors should require the institution to undertake appropriate measures. This test is usually achieved by means of a 200 basis point parallel shift of the yield curve.