In December 2023, the Basel Committee on Banking Supervision (BCBS) published a Consultative Document on the recalibration of shocks for the measurement of IRRBB. Following the consultation period, on 16 July 2024, the BCBS published the final Recalibration of Shocks in the Interest Rate Risk in the Banking Book Standard.

NMD are liabilities whereby the depositor is free to withdraw their deposit at any time since there is no defined contractual maturity date. Similarly, banks are typically able to adjust the interest rate attached to NMD on a unilateral basis. Despite the contractually short-term nature (using a repricing basis) of NMD, certain NMD or portions thereof may behave like longer-term, interest rate-insensitive positions. The inherent characteristics of NMD create complexities from the perspective of measuring, and in turn managing, IRRBB, meaning that a more involved approach is necessary.

Interest Rate Risk in the Banking Book (IRRBB) relates to both present and future risks to a bank’s capital and earnings arising from fluctuations in market interest rates. In recent years, IRRBB has become an area of increased focus for regulators: this has coincided with significant changes in the interest rate environment across major economies, the ending of an extended period of near-zero rates, high inflation, and industry events such as the failure of Silicon Valley Bank.

Effective 1 January 2022, the PRA implemented new requirements and expectations for banks, including creation of a regulatory limit for IRRBB and implementation of a Standardised Framework (SF) that banks may elect to follow.

Management of liquidity risk and IRRBB in the current climate.