Response to consultation on draft Guidelines on IRRBB and CSRBB
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From a practical perspective, we believe that the current draft guidelines may result in inconsistency of application across various Banks. For example, some Banks may justify inclusion or exclusion of certain assets and/or liabilities while others may treat same/similar positions differently. This can result in different measuring/monitoring approaches but may also result in difference in risk appetite/capital allocation against CSRBB. A clearly defined perimeter (e.g. a standardised framework) may help ensure consistency.
Also, the requirement to document and justify CSRBB treatment of all instruments within the banking book perimeter will be operationally intensive. Given this, we would expect EBA to provide sufficient time to Banks to strategically implement these requirements, if applicable in the current form.
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.
We do not have any concern with the proposed update, especially given the clarity that the cap applies to the full amount of non-financial deposits as opposed to purely the core part of deposits.Question 2: Do respondents find that the criteria to identify non-satisfactory IRRBB internal models provide the minimum elements for supervisors’ assessment?
The approach being taken here is understood. However, the criteria for what is non-satisfactory is light and leaves this open to supervisory interpretation, where an institutions interpretation may differ. For example, where an institution internally assesses that one of the key risks is not material for their business, they may decide not to immediately invest resource in ensuring that risk is as intensively monitored as other risk types. If an institution was therefore considered as a result to have an unsatisfactory internal IRRBB system, but had a plan to deliver improvements, would this mean they would have to implement the standardised approach on an interim basis? For many institutions, requiring an implementation of the standardised approach could be a lot more resource intensive to deliver than the requirement to remediate an unsatisfactory internal model. These points are not clear in the guidelines.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 definition of CSRBB is clear especially given the clarity regarding inclusion of idiosyncratic credit spread component (subject to conservativism) as we believe that in most cases the idiosyncratic credit spread component would be practically difficult to segregate from the market credit spread.Question 4: As to the suggested perimeter of items exposed to CSRBB, would you consider any specific conceptual or operational challenge to implement it?
From a technical/conceptual perspective, we consider the proposed guidelines to be sufficiently clear.From a practical perspective, we believe that the current draft guidelines may result in inconsistency of application across various Banks. For example, some Banks may justify inclusion or exclusion of certain assets and/or liabilities while others may treat same/similar positions differently. This can result in different measuring/monitoring approaches but may also result in difference in risk appetite/capital allocation against CSRBB. A clearly defined perimeter (e.g. a standardised framework) may help ensure consistency.
Also, the requirement to document and justify CSRBB treatment of all instruments within the banking book perimeter will be operationally intensive. Given this, we would expect EBA to provide sufficient time to Banks to strategically implement these requirements, if applicable in the current form.