Interest Rate Risk in the Banking Book (IRRBB)

Solution Overview

In addition to addressing the challenges stated above, AxiomSL‘s IRRBB solution sets up a solid foundation for financial institutions to meet future regulatory needs. Its data-driven, multi-jurisdiction platform provides highly configurable and customizable capabilities (rule-based calculations, aggregations, etc.) as well as drill-down functionalities allowing for full audit-trail to data sources. The end-to-end solution provides a single unified framework that is able to meet interest rate risk requirements such as data loading, movement (cash-flow) generation, scenario maintenance, modelling capability, classification, metrics calculations and reporting.

The solution handles the various components of interest rate risk measurements such as instrument categorization, treatment of portfolio as per its amenability to standardization, application of multiple shock and scenarios, calculation of different interest rate metrics e.g change in economic value of equity (ΔEVE) and change in net interest income (ΔNII). The solution ensures that the data, IRRBB treatment and calculation methodologies are consistent with other cash flow generated streams and liquidity risk calculation metrics such as LCR, NSFR and other monitoring tools.

The growing anticipation of normalization of interest rates from historically low levels and the associated market volatility are becoming increasingly concerning to the financial sector. These possible interest rate changes are likely to have significant ramifications on financial stability in general and bank’s balance sheet in particular. In tune with the global attention on interest rate uncertainty and risks, the Basel Committee on Banking Supervision (BCBS) has recently issued Standards for Interest Rate Risk in the Banking Book (IRRBB) to be in effect from January 1 2018. The IRRBB Standards introduces a strengthened Pillar 2 approach and sets out supervisory expectations for banks’ identification, measurement, monitoring and control of IRRBB.

These compliance requirements of IRRBB, over and above the other regulatory and internal management requirements of liquidity and capital, has once again highlighted the importance of deploying and maintaining a single core engine with the ability to effectively meet all the diverse regulatory compliance needs such as interest rate risk, liquidity and capital all under the same hood.

  • Enterprise-wide platform approach unifies data models without forcing expensive data transformation into common data formats
  • Strategic data-driven solution with full drill down capabilities ensuring transparency and traceability
  • Modular and integrated calculation engine for the complete array of interest rate metrics including ΔEVE and ΔNII
  • Advanced reporting templates that complies with multi-jurisdictional and multi-faceted regulatory reporting requirements
  • Comparison between the formatted regulatory report output with calculation results ensuring consistency and auditability

As part of the overall interest rate risk management framework, BIS stipulated that greater guidance had to be provided on the expectations for a banks’ IRRBB management process, especially with regards to:

  • Development of shock and stress scenarios
  • Key behavioral and modelling assumptions taken by banks in their measurement of IRRBB
  • Standardised disclosure requirements for the promotion of greater consistency, transparency and comparability in the measurement and management of IRRBB
  • Supervisory review process for elaboration on the factors which supervisors need to consider when assessing the banks’ level and management of IRRBB exposures as well as publication of supervisory criteria for identifying outlier banks through tighter threshold

Beyond these generic interest rate risk requirements, banks will also face a range of challenges when dealing with calculations, monitoring and compliance of the proposed IRRBB Standard:

Interest Rate Risk in the Banking Book (IRRBB)


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Asian Banker Award – Risk Management Awards 2016
Waters Rankings – Best Reporting System Provider
Waters Rankings – Best Reporting System Provider
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