What is Irrbb?

Interest rate risk in the banking book (IRRBB) refers to the current or prospective risk to the bank’s capital and earnings arising from adverse movements in interest rates that affect the bank’s banking book positions. When interest rates change, the present value and timing of future cash flows change.

Why do regulators require that financial institutions measure Irrbb?

Accurate and timely measurement of IRRBB is necessary for effective risk management and control. A bank’s risk measurement system should be able to identify and quantify the major sources of IRRBB exposure.

What is basis risk in Irrbb?

Basis risk, risks arising from hedging exposure to one interest rate with exposure to a rate which reprices. under slightly different conditions. • Yield curve risk, risks arising from changes in the slope and the shape of the yield curve.

What is the difference between banking book and trading book?

Basics of a Trading Book This differs from a banking book as securities in a trading book are not intended to be held until maturity while the securities in the banking book are going to be held long-term. Securities held in a trading book must be eligible for active trading.

What is the purpose of the Basel framework?

The Basel Core Principles provide a comprehensive standard for establishing a sound foundation for the regulation, supervision, governance and risk management of the banking sector.

What does a hedge ratio of 1 mean?

Hedge ratio is the comparative value of an open position’s hedge to the overall position. A hedge ratio of 1, or 100%, means that the open position has been fully hedged. By contrast, a hedge ratio of 0, or 0%, means that the open position hasn’t been hedged in any way.

Is FRTB part of Basel III?

The Fundamental Review of the Trading Book (FRTB) is a comprehensive suite of capital rules developed by the Basel Committee on Banking Supervision (BCBS) as part of Basel III, intended to be applied to banks’ wholesale trading activities.

What is Eve analysis?

The economic value of equity (EVE) is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset-liability management to measure changes in the economic value of the bank.

What does irrbb stand for?

Interest Rate Risk in the Banking Book (IRRBB) IRRBB Overview Interest rate risk in the Banking Book (IRRBB) is the risk to earnings or capital arising from movement of interest rates.

What are OSFI’s expectations about irrbb?

Interest rate risk is an important risk that can affect the safety and soundness of financial institutions. OSFI believes that a control framework that manages this risk to prudent levels is a fundamental component of sound banking practice. This guideline outlines OSFI’s expectations regarding an institution’s management of IRRBB.

What are the principles of irrbb management?

Principles 1 to 7 are of general application for the management of IRRBB, covering expectations for a bank’s IRRBB management process, in particular the need for effective IRRBB identification, measurement, monitoring and control activities.

What is interest rate risk in the banking book (irrbb)?

• Interest rate risk in the banking book (IRRBB) was part of the Basel capital framework’s Pillar 2 (Supervisory Review Process) and subject to the BCBS’s guidance set out in the 2004 Principles for the management and supervision of interest rate risk.