European Banking Authority reports on implementation of first phase of banking book heatmap

The European Banking Authority (EBA) has published a report on the implementation of the first phase of the short/medium term objectives in their interest rate risk in the banking book (IRRBB) heatmap. In the report, the EBA sets out a number of observations and recommendations, including in relation to:

• the materiality of non-maturity (NMD) behavioural assumptions and the complexity of their modelling. This includes a non-restrictive list of risk factors impacting NMD repricing behaviour and a toolkit to support supervisors in their analysis of NMD modelling.
• the complementary dimensions to the supervisory outlier test (SOT) on the Net Interest Income (NII) metric. The report discusses the additional dimensions that supervisors could consider for institutions defined as outliers.
• the expected approach to model and project commercial margins of NMD, which are subject to behavioural optionality, in the SOT on NII.
• hedging strategies.

Going forward, the EBA intends to continue assessing the impact of the IRRBB regulatory package and interacting closely with interested stakeholders. As medium/long term objectives of the heatmap, the EBA will monitor the five-year cap on the weighted average repricing maturity of NMD and credit spread risk arising from banking book related aspects, primarily regarding the perimeter of its application.

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