EBA details long-term objectives for banking book interest rate risk Heatmap
The European Banking Authority (EBA) published a report today outlining the medium- to long-term objectives of its interest rate risk in the banking book (IRRBB) Heatmap. The report includes key observations and recommendations for institutions and supervisors.
Completing the IRRBB roadmap
The EBA's latest report finalizes the medium- to long-term milestones outlined in its Interest Rate Risk in the Banking Book (IRRBB) Heatmap.
This publication builds upon guidance from the initial phase of examination, which was detailed in the first implementation report covering short- to medium-term objectives, released in February 2025. The current report offers an analytical review, presenting observations and recommendations across various areas.
These are intended to foster supervisory dialogue and enhance institutions' practices.
The EBA emphasizes that all recommendations should be applied proportionally, considering each institution's size, complexity, risk profile, and business model.
Crucially, the report does not introduce any new regulatory requirements.
Supervisory focus on risk practices
The report focuses on five key areas.
Supervisory Outliers Test (SOT) analysis indicates banks are adapting risk management to the new interest rate environment, with improved outlier numbers for ΔEVE and ΔNII.
The 5-year cap acts as a harmonizing benchmark, with the EBA recommending supervisory approval for deviations.
Commercial margin modelling predominantly uses constant-spread approaches, except for non-maturing deposits.
Credit Spread Risk in the Banking Book (CSRBB) perimeter practices are heterogeneous, requiring greater consistency.
Interest Rate Swaps (IRS) remain the main derivative for mitigating IRRBB exposures, emphasizing well-governed and effective hedging strategies.
Supervision's ongoing challenge
The EBA's ongoing focus on IRRBB is vital for banks in a volatile rate environment, yet the report highlights persistent inconsistencies in risk management.
This heterogeneity significantly challenges uniform supervisory standards across the EU, potentially hindering financial stability.
Effective implementation demands rigorous, proportionate application and continuous monitoring, a complex task ahead.