Interest rate risk in the banking book (IRRBB) Masterclass

Interest rate risk in the banking book (IRRBB) is part of the Basel capital framework under Pillar 2 and principles for the management and supervision of interest rate risk were set out in 2004 by the BCBS. Following consultation during 2015, BCBS published revised principles (D368) in April 2016, to reflect changes in market and supervisory practices.

The course has three main objectives:
• To provide a comprehensive overview of the new standards presented in BCBS paper D368 and compare them with existing requirements set out in 2004 and requirements set out by the EBA.
• Provide a refresher course to participants in the necessary mathematics required to construct zero curves, obtain discount factors and compute EVE and NII. This will involve numerical examples and case studies including constructing a regulatory report based on the standardised framework proposed in D368. A role-playing exercise will be used to practice engagement with a regulator, defending assumptions and responding to likely regulatory challenge.
• Look at the interaction of banking book interest rate risk with other areas of regulation, for example covering topics such as risk transfer, fund transfer pricing, liquidity risk capture in FRTB and interac- tions between the banking book and the trading book.

Those with less quantitative backgrounds should not be discouraged by the mathematical content. Spread sheet examples will be provided with all data and formulae that will allow all participants to engage in ‘whatif’ scenarios to gain a feel for how different assumptions can affect the results in regulatory reports and the likely challenges. Participants will be invited to work in groups to prepare a report based on their own assumptions and a role-playing session will be used to give participants experience of a meeting with regulators to review their submissions.