We support the aim to collect good quality and consistent data on interest rate risk, given its relevance particularly in times of rapidly evolving economic conditions and tightening monetary policy.
As the policy debate for the introduction of the new IRRBB framework nears finalisation, including the threshold for the Net Interest Income (NII) supervisory outlier’s test (SOT), we would recommend that in a first step the mandatory reporting should anticipate the revised risk management requirements. After an observation period, one year, supervisory authorities would gain many more data points, with higher reliability, for the calibration – and with results produced in the current economic and monetary environment. In this context, we appreciate the EBA’s recent suggestion to adapt the level of the threshold in the supervisory outlier test for a large decline of net interest income to 5%, to address the current exceptional circumstances – and the aim to review going forward the overall appropriateness of the large decline definition.
Coming to the reporting sets, we would highlight that some of the requirements of the proposed IRRBB reporting templates can only be met with best-effort approaches. A fundamentally more open wording would significantly reduce the implementation effort. The proposed templates instead even seem to restrict the application of a methodology of choice as per the IRRBB Guidelines, since interest rate risk management has never been subject to such granular standardised breakdowns.
Only information that is needed for a bank’s (reasonable) interest rate risk management should be required for regulatory reporting. Indeed, the degree of detail and the specification of a certain product mix would entail a new dimension in the reporting of interest rate risk for institutions, without any improvements in actual interest rate risk management.
Overall, we would also like to emphasize that the implementation of the proposed templates can only be achieved with huge effort and by using several interim solutions. The implementation of such a reporting framework can only be achieved in the long term and with several major software adjustments and process-related changes.
We also notice that the proposed requirements would entail important challenges and costs for all categories of institutions (small and non-complex institutions – SNCIs, large institutions, and other institutions). Therefore, the EBA targets for reducing reporting costs and expanding proportionality as part of the Cost Of Compliance study conducted in 2020 should be assessed also in light of these reporting sets.
In terms of proportionality, we welcome the simplifications introduced for SNCIs. However, in light of the scope of the new reporting requirements, these simplifications seem insufficient.