Response to consultation on draft RTS on IRRBB supervisory outlier tests
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Could you please clarify if institutions are allowed to use credit risk assumptions when measuring EVE if these assumptions are not included in yield curves but employed by decreasing the cash flow for the expected loss (calculated according to the IFSR9 principles).
Question 3: Do respondents consider that all the necessary aspects have been covered in the draft regulatory standard? Do respondents find the provisions clear enough or would any additional clarification be needed on any aspect?
In Article 4, paragraph (m) of draft RTS on SOT is stated that “An appropriate general ‘risk-free’ yield curve per currency shall be applied (e.g. swap rate curves). That yield curve shall not include instrument-specific or entity-specific credit spreads or liquidity spreads.“ Nevertheless, there is no provisions regarding inclusion of instrument-specific or entity-specific credit spreads in cash flows although paragraph 14 (c) of consultation paper states that „The regulatory technical standards will specify the inclusion, composition and discounting of cash flows sensitive to interest rates arising from the institution's assets, liabilities and off-balance-sheet items, including the treatment of commercial margins and other spread components, in the calculation of the economic value of equity.“Could you please clarify if institutions are allowed to use credit risk assumptions when measuring EVE if these assumptions are not included in yield curves but employed by decreasing the cash flow for the expected loss (calculated according to the IFSR9 principles).