Interest Rate Risk in the Banking Book (IRRBB)

Identify, mitigate and effectively manage this regulatory challenge

Of late, management of Interest Rate Risk in the Banking Book (IRRBB) is receiving considerable attention, mainly owing to two complementary factors. First is the market condition wherein interest rates have been at a historical low for a long time and the resultant uncertainties posed by the possibly divergent policy response from the central banks together with recent market volatility and customer response to such rate changes. The second and probably immediate reason is the regulatory compliance requirement wherein the Basel Committee on Banking Supervision (BCBS) has issued Standards to be implemented by January 2018 that prescribes a strengthened Pillar II approach and set out broad guidelines for banks’ identification, measurement, monitoring and control of IRRBB. As a result of these, banks are giving special attention to the enhancement of IRRBB management and integration with other risk and finance compliance and operational framework. This is supplemented by increasing focus on improvement of IRRBB governance and closer attention to the assumptions and management techniques used for IRRBB.

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