The European Banking Authority published a report setting out the short to medium term objectives of its interest rate risk in the banking book (IRRBB) Heatmap, with observations and recommendations for institutions and supervisors. It follows the EBA’s IRRBB scrutiny published in January 2024 and provides tools to support a common understanding and assessment of IRRBB risk, without introducing new requirements or thresholds. Key areas include non-maturity deposits (NMD) behavioural assumptions, with a non-exhaustive list of risk factors affecting NMD repricing and a supervisory toolkit for analysing NMD modelling. For institutions identified as net interest income (NII) outliers under the supervisory outliers test (SOT), the report sets out complementary dimensions supervisors could consider, drawing on internal metrics and reiterating that SOTs are indicators with no automaticity under the Supervisory Review and Evaluation Process. It also clarifies how to model commercial margins of NMD in the NII SOT under the constant balance sheet assumption, expecting the same assumptions used internally or, where absent, a constant spread across scenarios, and includes recommendations on hedging strategies, including the role of interest rate derivatives and NMD repricing modelling aligned to NMD features and natural hedging. Work will continue with stakeholders on medium to long term Heatmap objectives, including monitoring the five-year cap on the weighted average repricing maturity of NMD, credit spread risk in the banking book (CSRBB) aspects, and the International Accounting Standards Board’s Dynamic Risk Management project. The EBA also flagged ongoing monitoring of the practical implementation of IRRBB standards, following the reinforcement of the EU IRRBB framework through delegated rules on the SOT and standardised approach and amended reporting requirements, alongside the EBA Guidelines on IRRBB and CSRBB that have applied since 31 December 2023.
European Banking Authority 2025-02-06
European Banking Authority publishes IRRBB Heatmap report outlining priorities for non-maturity deposits, NII outliers and hedging practices
The European Banking Authority (EBA) released a report on short to medium-term objectives for its IRRBB Heatmap, offering observations and recommendations without new requirements. Key areas include NMD behavioural assumptions, supervisory tools for NMD modelling, and guidance for NII outliers under the SOT. The EBA will continue collaborating with stakeholders on long-term objectives, including monitoring the five-year cap on NMD repricing maturity and CSRBB.