Basel drops IRR capital requirement

Author: Edward Price | Published: 2 May 2016

The Basel Committee on Banking Supervision (BCBS) has dropped a proposed rule requiring banks to hold extra capital against the risk of rising interest rates. As a result, the Committee has been reported as both softening and hardening its line on interest rate risk (IRR). 

Instead of the requirement to hold more capital, the Committee will instead encourage supervisors at the national level to monitor banks’ ability to cope with IRR. That and other new proposals together make up the Basel Committee’s standards for Interest Rate Risk in the Banking Book (IRRBB) and are a revision of the Committee's 2004 Principles for the management and supervision of interest rate risk.

Lawrence Kaplan,
Paul Hastings
IRR is the risk that interest rate changes can reduce a bank’s earnings or net worth. Historically, interest rates are low in the US, Europe and Japan, although US rates are set to rise...