The Handbook of ALM in Banking (2nd Edition)
First published:
ISBN: 9781782723455
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The New Basel Standards on IRRBB and Their Implications for ALM
Roberto Virreira Zijderveld
Introduction
Bank Capital and Liquidity
ALM in the Context of Enterprise Risk Management
The New Basel Standards on IRRBB and Their Implications for ALM
Measuring and Managing Interest Rate and Basis Risk
The Modelling of Non-Maturity Deposits
Modelling Non-Maturing Deposits with Stochastic Interest Rates and Credit Spreads
Managing Interest Rate Risk for Non-Maturity Deposits
Replication of Non-Maturing Products in a Low Interest Rate Environment
Managing Mortgage Prepayment Risk on the Balance Sheet
Considerations for ALM in Low and Negative Interest Rate Environments
Credit Spreads
Hedge Accounting
Supervisory Views on Liquidity Regulation, Supervision and Management
Measuring and Managing Liquidity and Funding Risk
Managing Reserve Assets
Instruments for Secured Funding
Asset Encumbrance
Capital Management
A Global Perspective on Stress Testing
Reverse Stress Testing: Linking Risks, Earnings, Capital and Liquidity – A Process-Orientated Framework and Its Application to Asset–Liability Management
XVAs and the Holistic Management of Financial Resources
Optimal Funding Tenors
Funds Transfer Pricing in the New Normal
Balance-Sheet Management with Regulatory Constraints
In this chapter we introduce the technical concepts and definitions applied by interest rate risk in the banking book (IRRBB) managers, describe the evolution of IRRBB regulation and regulatory thinking since the inception of this discipline and, finally, present the most recent regulatory framework set out by the Basel Committee on Banking Supervision (2016a) and some key considerations for its implementation in banking institutions.
First, we show how regulatory philosophies and techniques resulted in the current IRRBB practice and the Basel framework (Basel Committee on Banking Supervision 2016a). Then we show how and why IRRBB has progressively departed from market risk to form a new discipline primarily intended to address structural risk issues. Next we analyse the challenges, considerations and implications of implementing the 12 principles in the Basel framework. These principles are grouped according to their objectives and analysed in terms of different implementation alternatives and their effects on the organisation. Finally, we summarise the key implications of the Basel requirements and the emerging trends at the time of writing. We give some key concepts that are
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