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Version date: 15 December 2019 - onwards

SRP31 Interest rate risk in the banking book (paras. 31.1- 31.129) (effective as of 15 December 2019)

This chapter describes requirements on assessing interest rate risk in the banking book, ie the current or prospective risk to a bank's capital and to its earnings, arising from the impact of adverse movements in interest rates on its banking book. Due to the heterogeneous nature of this risk, it is captured in Pillar 2.

Version effective as of 15 Dec 2019

First version in the format of the consolidated framework.

Definition of IRRBB

31.1 Interest rate risk in the banking book (IRRBB) refers to the current or prospective risk to the bank's capital and earnings arising from adverse movements in interest rates that affect the bank's banking book positions. When interest rates change, the present value and timing of future cash flows change. This in turn changes the underlying value of a bank's assets, liabilities and off-balance sheet items and hence its economic value. Changes in interest rates also affect a bank's earnings by altering interest rate-sensitive income and expenses, affecting its net interest income (NII). Excessive IRRBB can pose a significant threat to a bank's current capital base and/or future earnings if not managed appropriately. A more detailed description of IRRBB and its management techniques can be found in SRP98.

31.2 Three main sub-types of IRRBB are defined for the purposes of this chapter. All three sub-types of IRRBB potentially change the price/value or earnings/costs of interest rate-sensitive assets, liabilities and/or off-balance sheet items in a way, or at a time, that can adversely affect a bank's financial condition.