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
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.
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...