The Handbook of ALM in Banking
First published:
ISBN: 9781782720119
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New Regulatory Developments for Interest Rate Risk in the Banking Book
Volker Leistikow
Introduction
New Regulatory Developments for Interest Rate Risk in the Banking Book
Bank Capital and Liquidity
ALM within a Constrained Balance Sheet
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
Optimising Risk and Return of Non-Maturing Products by Dynamic Replication
Hedge Accounting
Bank Runs and Liquidity Management Tools
Strategies for the Management of Reserve Assets
Optimal Funding Tenors
Instruments for Secured Funding
Funds Transfer Pricing in the New Normal
Capital Instruments under Basel III
Understanding the Price of New Lending to Households
The aim of this chapter is to summarise common concepts that are widely used by banks to measure and to manage interest rate risk in the banking book (IRRBB). Furthermore, it gives an outlook on the future regulatory developments and its implications for the management of IRRBB.
One of the most important regulatory publications on IRRBB is the “Principles for the Management and Supervision of Interest Rate Risk” (Basel Committee on Banking Supervision 2004b, pp. 3ff). In this publication the Basel Committee defines the sources and effects of interest rate risk and it also establishes 15 principles with respect to the management of IRRBB. Following its transition into European legislation, the rules in the Basel Committee paper were further specified in the guidelines “Technical aspects of the management of interest rate risk arising from non trading activities under the supervisory review process”, published by the Committee of European Banking Supervisors (2006). In mid 2013 the CEBS’s successor organisation, the European Banking Authority (EBA) published a consultation paper proposing significant changes to the above-mentioned guidelines focusing on scenarios, stress-testing
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