EBA publishes Opinion on RTS concerning SOTs for IRRBB supervision
On 26 April 2023, the European Banking Authority (EBA) published an Opinion on the draft regulatory technical standard on the supervisory outlier tests (SOT) for the supervision of interest rate risk in the banking book (IRRBB). In the Opinion, the EBA takes a stance in particular on what constitutes a large decline of net interest income in a shock scenario (NII SOT), in order to better reflect the current interest rate environment.
Initially, the threshold for the NII SOT was proposed at the level of 2.5% of Tier 1 capital, but in the present Opinion, the EBA proposes it to be set at the level of 5% of Tier 1 capital. In addition, the EBA emphasises that an overrun of the threshold for the NII SOT would not automatically trigger the exercise of supervisory measures, but the NII SOT is one of the supervisor’s tools used in assessing a bank’s IRRBB. Neither should an overrun of the threshold for the NII SOT necessarily lead to actions in a bank’s internal risk management systems.
The Opinion is available in full at the EBA website: EBA updates on the definition of a large decline of net interest income in relation to the interest rate risk in the banking book.
The first two supervision releases concerning the new regulatory package on the IRRBB are available on the FIN-FSA website in Finnish and Swedish only, while the most recent one is also available in English:
- Supervision release 2 May 2023 – 27/2023: Amendments to regulations and guidelines 5/2015 on the management of interest rate risk arising from non-trading activities and of credit spread risk enter into force on 30 June 2023.
- Supervision release 14 November 2022 – 51/2022: EBA publishes a regulatory package on IRRBB (in Finnish)
- Supervision release 4 January - 1/2022: EBA launches three consultations on IRRBB and CSRBB (in Finnish)
For further information, please contact
Marjo Risku, Chief Specialist, telephone +358 9 183 5275 or marjo.risku(at)fiva.fi