In the context of the measurement of IRRBB by an institution’s internal system, and where it comes in particular to IRRBB measurement assumptions, paragraph 111 of the EBA Guidelines (GL) on IRRBB and CSRBB establishes that, except for specific products referred to therein, the assumed behavioural repricing date for retail deposits, wholesale deposits from non-financial customers and operational deposits from financial customers, that do not have any specific repricing dates (non-maturity deposits), should be constrained to a maximum weighted average repricing date of 5 years, where this 5-year cap applies to the full amount (core and non-core) of the aggregate portfolio of those deposits and separately for each currency.

First, as a general condition and following paragraphs 5 and 19, the application of the GL, including the 5-year cap, for institutions implementing internal systems for the purposes of the identification, evaluation, management and mitigation of IRRBB, is confined to interest rate sensitive instruments in the banking book. 

Second, the EBA final report on the GL on IRRBB and CSRBB explains that the inclusion of the 5-year cap in the GL responded to the particular interest rate environment at that moment with the anticipation that a higher volatility in NMDs could be triggered by the specific environment of repeated high increases in rates.

Generally, the GL (paragraph 16) establish that institutions should identify their existing and prospective exposures to IRRBB and CSRBB in a proportionate manner, depending on the level, complexity and riskiness of their non-trading book positions, taking into account their business model, their strategies and the business environment they operate in or intend to operate in.

More specifically, in the context of measurement of IRRBB by an institution’s internal system, paragraph 103 envisages that institutions should determine IRRBB measurement assumptions, including behavioural assumptions, in a proportionate manner and in alignment with business strategies.

Institutions are expected to comply with the 5-year cap which targets the prudent treatment of deposits without a specified maturity.

On the basis of its specific business model, the institution could demonstrate to the competent authority the possible unintended effects of the 5-year cap in a way that the outcome of the application of the cap, versus its non-application, would, given its exceptional case, not be the expected one or would be a counterintuitive one. In this context the competent authority would assess the outcome of the application of the cap in its global supervisory judgment of the IRRBB exposure of the bank in the context of its specific business model. The assessment of the supervisor will be supported by the EBA ongoing scrutiny plans on possible unintended effects of some aspects of the GLs as communicated when publishing the GLs.