The downfall of Silicon Valley Bank in spring 2023 was triggered by poor management of interest rate risk in the face of rising rates. This risk category is one of the most significant that banks must manage. Therefore, it came as no surprise when the European Banking Authority (EBA) announced new reporting requirements for the Interest Rate Risk in the Banking Book (IRRBB) on July 31, 2023, aiming to prevent similar bank failures due to future interest rate fluctuations.

EBA then published updates to the ITS on supervisory reporting of IRRBB, including new reporting templates as part of the DPM 3.3 framework. SSM banks were mandated to comply with these changes by December 2023.

Subsequently, on February 6, 2024, EBA unveiled Reporting Framework 3.4 (DPM 3.4), finalizing the taxonomy to encompass IRRBB. Starting in September 2024, nearly all banks in the EU will be required to adhere to these new reporting requirements. While IRRBB is not a new regulation, the volume and complexity of EBA reporting requirements surpass that of current local mandates, posing a challenge for many banks. 

For instance, while even small and non-complex institutions (SNCIs) must submit over 4,000 quantitative and qualitative data points as per the ITS, non-SNCIs will need to submit approximately 6,000 data points to national regulators.

While IRRBB is not a new regulation, the volume and complexity of EBA reporting requirements surpass that of current local mandates, posing a challenge for many banks. 

Interest Rate Risk in the Banking Book (IRRBB)

ITS on supervisory reporting 

The ITS on supervisory reporting is the latest in a series of fundamental changes the EBA is making to the IRRBB framework. Beginning in 2022, the regulator implemented the Capital Requirements Directive (CRD V) requirements, which include: 

  • Guidelines on IRRBB and credit spread risk arising from non-trading book activities (CSRBB)
  • The final draft RTS on the IRRBB standardized approach
  • The final draft RTS on IRRBB supervisory outlier tests (SOT)

These changes aim to enhance methodologies and standardize the IRRBB framework, compelling banks to adopt best practices and impose limits on how certain instruments, such prepayments, term deposit early withdrawals, loan commitment drawdowns and non-maturity deposits, are modeled. 

With the addition of the new IRRBB template changes, banks are now required to deliver structured reports on these risks, promoting uniform reporting across Europe and bringing about a more resilient and standardized risk management framework. 

It is important to acknowledge the scope of these requirements for compliance teams, applicable to large banks, SNCIs and other financial institutions alike. Although SNCIs and other institutions may submit simplified templates, the underlying calculation and required information remain substantially complex. 

In completing these templates, banks must provide data on NII risk, EVE risk and repricing gap measures, alongside other metrics (such as duration and yields), category breakdowns and methodologies. Banks must map the data accurately, calculate relevant analytics, incorporate appropriate validation rules and submit the reports in XBRL format. 

 

With the addition of the new IRRBB template changes, banks are now required to deliver structured reports on these risks, promoting uniform reporting across Europe and bringing about a more resilient and standardized risk management framework.

Interest Rate Risk in the Banking Book (IRRBB)

The road ahead 

Complex as the regulations are, the solutions needed for efficient reporting are relatively intuitive. Financial institutions need streamlined workflows throughout the reporting lifecycle, from foundational management and storage of the data to normalization and calculation to format-specific report submission. Partnerships like the one between SS&C Algorithmics and Regnology, focused on IRRBB calculation and reporting, offer one possible solution. 

The September deadline is fast approaching, so there’s not a moment to waste. The time for banks to accelerate their reporting is now – otherwise, they’ll be scrambling to catch up. By embracing modernization today, these firms can ensure a smooth transition to the new scope of IRRBB compliance while preparing for the future of regulation. 

This article is co-written by Regnology and SS&C Algorithmics

Authors

Steven Good

Steven Good

Director, ALM & Liquidity Risk, Product Management SS&C Algorithmics

Anh Chu

Anh Chu

Product Director Regnology

Stefan Trummer

Stefan Trummer

Senior Product Manager Regnology

You might also be interested in

  • IRRBB – Impact on the regulatory reporting landscape

    Insight

    IRRBB – Impact on the regulatory reporting landscape

    Learn about the intricate connections and interdependencies between IRRBB reporting requirements and other regulatory domains.

    Read more
  • Empower your organization with a fully streamlined end-to-end IRRBB and Liquidity Risk Management solution

    Insight

    Empower your organization with a fully streamlined end-to-end IRRBB and Liquidity Risk Management solution

    Find out more about SS&C Algorithmics and Regnology's joint solution focused on IRRBB calculation and reporting.

    Read more
  • Basel IV: Adapting to the new data requirements

    Insight

    Basel IV: Adapting to the new data requirements

    Regnology’s Product Director Anh Chu shares her perspectives on different areas of challenges introduced by Basel IV and best practices for a smooth transition to the new regulatory framework.

    Read more

Contact us