Bank of Russia publishes methodological recommendations on assessing interest rate risk in banking book - The Industry Spread

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Bank of Russia publishes methodological recommendations on assessing interest rate risk in banking book

July 16, 2020

The Bank of Russia has prepared the methodological recommendations to integrate modern universal approaches to quantifying interest rate risk in the banking book into the banking practice. These approaches are stipulated by the Interest rate risk in the banking book (IRRBB) standard (April 2016) of the Basel Committee on Banking Supervision.

These recommendations are applicable to credit institutions whose assets total 500 billion rubles or more (including at the level of a banking group). They involve a standardised approach to assessing interest rate risk in the banking book, including interest rate-sensitive long-term assets (claims) and liabilities, based on methods for measuring changes in the economic value of capital and in net interest income. This document is also intended to improve and ensure the comparability of indicators utilised in interest rate risk management frameworks for banking books.

Important innovations introduced by the recommendations are the application of multiple interest rate change scenarios for financial instruments denominated in different currencies and the full revaluation of instruments in response to an interest rate change within the method for measuring a change in the economic value of capital.

Following the analysis of how credit institutions apply the recommendations, the Bank of Russia is going to stipulate them as mandatory in the regulations on economic situation assessment and interest rate risk reporting for large banks.

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