Basel IRRBB Regulation: A Framework for Managing Interest Rate Risks

Abstract

 The Basel Committee published new standards on Interest Rate Risk in the Banking Book (IRRBB) during April 2016. Banks are required to comply with new Basel IRRBB standards beginning with the financial year ending December 31, 2017. The new standard establishes an enhanced standardized methodology for comprehensive capture of risk under the Basel ‘Enhanced Pillar 2’ framework.

The regulation necessitate banks to upgrade existing IT applications and infrastructure, as well as data aggregation systems over the next few years focusing on data quality and model governance. Understanding the contradictions between, economic value and earnings-based measures, and rebalancing the balance sheet to strike a tradeoff between the two, will form an integral part of banks’ IRRBB initiatives.

 

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