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Angličtina

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An understanding of the revised standards

Gain theoretical and practical understanding of IRRBB methodology

Understand links between IRRBB and other regulatory initiatives such as FRTB and liquidity risk management

Understand risk transfer, fund transfer pricing

Gain experience of facing regulatory challenge on proposed model

Interest rate risk in the banking book (IRRBB) is part of the Basel capital framework under SRP – the supervisory review process. This course provides a comprehensive overview of the BCBS framework and looks at implementation approaches primarily in Europe but also other jurisdictions. Discussion will be encouraged between participants on how IRRBB is implemented in their banks and issues they face. This will be facilitated by team spreadsheet-based exercises and also role-playing exercises where time constraints and class sizes permit. We will also explore the impact of other regulations on banking book management, for example FRTB and liquidity risk management.

Since stress testing has become an important tool for risk management and a key part of the regulatory framework the course also spends time discussing the application of stress testing techniques. A particular area of focus will be on risk aggregation. We will also explore scenario analysis techniques to consider CSRBB – credit spread risk in the banking book.

**The course has four main objectives: **

Since stress testing has become an important tool for risk management and a key part of the regulatory framework the course also spends time discussing the application of stress testing techniques. A particular area of focus will be on risk aggregation. We will also explore scenario analysis techniques to consider CSRBB – credit spread risk in the banking book.

- To provide a comprehensive overview of the BCBS framework for IRRBB, look at the implementation in Europe, particularly in connection with CRD, CRR and EBA guidelines and technical standards with practical case studies.
- Review and discuss good risk management techniques, for example: hedging, management of yield curve risk, yield curve arbitrage, and good governance standards.
- Consider relevant topics (emphasis depending on audience demand) e.g. funds transfer pricing, risk free interest rate benchmarks (replacements for the IBORs), Liquidity Risk Management, FRTB and interactions between the banking book and the trading book, CSRBB, stress testing.
- Refresh and develop quantitative techniques:
- Cash flow discounting, zero curve construction, yield curve models
- Computation of risk metrics, particularly: EVE, NII.
- A look at some modelling and risk management techniques: stochastic simulation, pricing options, modelling behavioural options, non performing loans, basis risk, credit spreads, capital and liquidity buffer calibration, stress testing.
- Assigning probabilities to stress scenarios in order to compute an economic capital number

Day One

- Definition of IRRBB
- Accounting and IRRBB
- Changes in the Basel III Framework
- Components of interest rates
- Risk free rate, duration spread, liquidity spread, credit spreads, commercial margins
- IRRBB and credit spread risk

- Measurement of IRRBB
- Earnings based measures - NII
- Economic value based measures - PV01, EV, EVE and EVaR
- Interest rate scenarios
- Options
- Non maturing deposits - behaviouralisation, core deposits

- Time value of money
- Forward Rates
- Compounding and day count conventions
- Net Present Value of a future cash flow - bond example
- PV01, duration and convexity

- Study Example

- IRRBB - Scope and timelines
- IRR Principles:
- Comparison with current EBA requirements and bcbs 2004 (BCBS 108)
- Discussion of Principles

- US Implementation (optional)
- Draft Revised CRD and CRR

- Constructing zero curves
- Discount factors
- Forward Curves
- Interest Rate Swap Curves
- Study Example

- Overall structure
- The components
- Treatment of NMDs and capital
- Behavioural options
- Contractual options

Day Two

- Case study using bank disclosures and based on D368 reporting requirements
- Construct calculations and report using provided Spreadsheet
- Discuss base assumptions and bank performance under the prescribed regulatory scenarios
- Split into groups and consider revised submission

- Role-play, face the regulator - a Pillar 2 meeting

- Hedging duration risk
- Bonds
- Futures
- Swaps

- Hedging convexity risk
- Options

- Understanding yield curve shape
- Pricing convexity
- Yield curve arbitrage
- Strategies for the banking book

- Simulation Models, Monte Carlo and option pricing
- Behavioural Options - deposit withdrawal, prepayment risk, wrong way risk, default risk

- Sensitivity of NMD rates to changes in market rates - passthrough rates - a bank policy decision
- The econometric relationship between NMD rates, loan portfolio rates and market rates

- RFRs and the IBORS
- Term Structure of RFRs
- Issuance activity

- Regulatory requirements
- Generating stressed interest rate scenarios
- Credit Spread Risk in the Banking Book (CSRBB)
- Risk Aggregation
- A Monte Carlo Solution
- Bayesian Solutions
- Bayesian Networks - deriving an economic capital number from scenarios
- Optimisation methods
- Conditional probabilities of scenarios

- Risk Appetite Frameworks
- Introduction to FRTB
- Trading book/banking book boundary definition under FRTB
- Risk transfers from banking book to trading book
- Liquidity Horizons