4.3.1 General approach to measurement of IRRBB

79. Institutions should implement robust internal measurement systems (IMSs) that capture all components and sources of IRRBB which are relevant for the institution’s business model.

80. Institutions should measure their exposure to IRRBB in terms of potential changes to both the economic value and net interest income measures plus market value changes. Institutions should use complementary features of the IRRBB measures to capture the complex nature of IRRBB over the short-term and long-term time horizons. In particular, institutions should measure and monitor (i) the overall impact of key modelling assumptions on the measurement of IRRBB under the different IRRBB measures, and (ii) the IRRBB of their banking book interest rate derivatives where relevant for the business model.

81. If commercial margins and other spread components are excluded from economic value measures, institutions should (i) use a transparent methodology for identifying the risk-free interest rate at inception of each instrument; and (ii) use a methodology that is applied consistently across all interest rate sensitive instruments and all business units.

82. When calculating net interest income measures to evaluate IRRBB exposures, institutions should include commercial margins.

83. Institutions should consider non-performing exposures (net of provisions) as interest rate sensitive instruments reflecting expected cash flows and their timing.