Global Correspondence

GFMA Response to BCBS Recalibration of Shocks for IRRBB

GFMA submitted a response to the Basel Committee on Banking Supervision (BCBS) consultation on the Recalibration of Shocks for Interest Rate Risk in the Banking Book (IRRBB).

GFMA and its members consider that some elements in the BCBS consultation represent a timely and well considered revision of the current Basel IRRBB standard, particularly in relation to the proposal to expand the data time series used to calibrate currency level shocks. However, there are aspects of the consultation which need further consideration.

In particular, we have strong reservations against the proposal to increase the confidence level from a 99th to a 99.9th percentile value to determine the shock factor and consider that a stronger justification should be provided for this change given the implications for the Supervisory Outlier Tests (SOTs) and the potential business and capital impacts. We consider that the increase in the confidence level would result in a disproportionate increase to the shocks (more intensified for non-parallel scenarios) which would be exacerbated further when combined with the current rounding up rule.

As set out in the response, the outcome of our analysis leads to a logical and clear recommendation for maintaining the confidence threshold at the current 99th percentile level, and applying a rounding threshold to 25 bps in place of the current 50 bps.

– 27 March 2024 –

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