Response to consultation on draft Guidelines on IRRBB and CSRBB

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Question 1: In the context of the measurement of the impact of IRRBB under internal systems, paragraph 111 envisages a five year cap repricing maturity for retail and non-financial wholesale deposits without a specified maturity. Would you foresee any unintended consequence or undesirable effect from this behavioural assumption in particular on certain business models or specific activities? If this is the case, please kindly provide concrete examples of it.

The CRD/2019/878 article 98 a paragraph 5a was inserted which included the following EBA
mandate: “EBA shall develop draft regulatory technical standards to specify for the purposes of
paragraph 5 the following: …5a (b) and 5a (c) in light of internationally agreed standards, the
common modelling and parametric assumptions, excluding behavioural assumptions, that
institutions shall reflect in their calculations of the economic value of equity”….”.
As pointed out in attached general remarks, according to CRD 98 5a (b) and (c) behavioural
assumptions are not included in EBA’s mandate according to which EBA is preparing the new EBA
RTS EBA/CP/2021/36 specifying supervisory shock scenarios, common modelling, and parametric
assumptions in the context of what constitutes a large decline for the calculation of the economic
value of EVE and NII. If behavioural assumptions will be included in EBA Guidelines, which
documentary is also part of the same topic, this could be seen as a working around the EBA
Mandate for assumptions in SOT specified in EBA/CP/2021/36.

Question 2: Do respondents find that the criteria to identify non-satisfactory IRRBB internal models provide the minimum elements for supervisors’ assessment?

As opposed to the desired outcome, the new version of the guideline sets very broad criteria to
define “Non-satisfactory IRRBB internal systems”, even in respect of the principle of proportionality.
Our understanding is that the supervisory expectation is compliance with all requirements in the EBA
guidelines. Failure to fulfill the supervisory expectations could be that national authorities require the
institution to use the standardized or simplified standardized method. NCAs are granted a
substantial amount of discretion regarding the valuation of the institutions internal measurement
systems (IMS) and leaves the possibility for large variations among and within jurisdictions.
To ensure good risk management practices and harmonized supervisory practices we believe this
national discretion should be reduced through specific criteria that must be fulfilled for the NCAs to
require this. Without a clear definition of what the individual authorities mean as “material
components of the interest rate risk (gap risk, basis risk, option risk)” and of “robust and
economically justified … dimensions of risks for significant assets”, it is hard to create common
definitions. A minimum requirement formulated as “In compliance with these Guidelines” (Article
118) is not very specific. We also believe it should be specified that a criterium for requiring an
institution to use the standardized or simplified standardized approach must be that it improves the
institutions risk management.
The standardized approach is less granular than IMSs i.e. for example limiting the assumptions to a
static balance sheet and a specific time period (dNII metric calculated over one year). Requiring a
bank to replace its IMS could potentially have a negative effect on risk management as it might no
longer capture risks that are significant for the specific institution and put too much emphasis on
others that are not.

Question 3: Is there any specific element in the definition of CSRBB that is not clear enough for the required assessment and monitoring of CSRBB by institutions?

The CP envisages dramatic changes to the definition and scope of Credit Spread Risk in the
Banking Book (CSRBB) while the July 2018 EBA Guideline already implemented the BCBS Standard
that has not changed since then. The envisaged changes are not only not substantiated but they
would also introduce significant confusions and complexities. CSRBB relates to ‘market credit
spread’ / ‘market price of credit risk’ / ‘market liquidity spread’. All of which refers to ‘market’,
which is welcome as CSRBB belongs to the Market Risk chapter in the CRR. However, the different
components generate confusion. The new framework opens for potentially including all fair value
instruments on the banks’ balance sheets and the banks are required to justify excluding any of
these instruments. This puts an excessive operational burden on the banks and allows for
differences in interpretation and thus practice across banks and jurisdictions. The definition should
be cleared, to align with a CRR definition of CSRBB.
The usefulness separating the market-risk components into CSRBB and IRRBB, as argued in
BCBS/2016/04, is primarily to monitor and assess CSRBB, since CSRBB can be considered a sub-risk
component of IRRBB. However, the new EBA GL suggests a severe expansion of the CSRBB
framework and scope, which stretches not to just monitor and assess CSRBB, but to also create a
separate limit and management structure. This is in contrast with previous EBA GL and also with the
spirit of BCBS, as management and mitigation are limited to IRRBB. This expansion is questionable
from a governance perspective and not proportionate to the materiality of CSRBB in comparison
with rest of IRRBB.
The exclusion of the idiosyncratic credit spread is noted but Banks will most likely develop measures
that seek to measure the aggregate CSRBB, rather than seek to break the risk into the suggested
component parts. This aggregate measure will most likely include the risk attached to an institutions
credit quality, so will be very conservative in nature and will over represent the risk when compared
against other jurisdictions.
Where we have concern is around the perimeter, as the majority of the Banking Book has no
“market” index to reference. From reading point 124 of the proposed guidelines, instruments should
only be excluded from the perimeter when they are not sensitive to credit spread risk. There
appears to be a disconnect between this paragraph and that of 120, as the former is linked to
sensitivity to credit risk while the latter is linked to “market” related measures for credit spread. The
proposed negative boundary perimeter, where Banks have to justify what is included, will lead to
different measures being adopted across Banks. To align with the requirements of paragraph 120,
we consider that a positive boundary perimeter should be used, namely only assets that have
external transparency to a deep and liquid market pricing. As such, the CSRBB measurements
should remain linked to assets and a positive boundary should be used where only assets that can
be linked to deep and liquid tradeable markets are included. As such, CSRBB across Banks will
become more aligned and therefore be more comparable.

Question 4: As to the suggested perimeter of items exposed to CSRBB, would you consider any specific conceptual or operational challenge to implement it?

Compared to the previous EBA Guidelines 2018 the monitoring is no longer limited to the assets, also
liabilities are planned to be included. The extension introduced in the consultation paper deviates
from the EBA Guidelines 2018 (published only three years ago), which is based on BCBS April 2016
document. The Basel regulation for large internationally active institutions has not changed.


The guidelines should include clear criteria for determining which exposures are to be included.
The definition of CSRBB, which is part of the EBA mandate, is insufficient and, from the perspective
of the supervised institutions, lacks foreseeability.

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Name of the organization

Finance Norway, Swedish Bankers Association, Finance Finland and Finance Denmark