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Archive » May 2022 » The prudential regulation of interest rate risk in the banking book: evolution and impacts on bank risk management practices

The prudential regulation of interest rate risk in the banking book: evolution and impacts on bank risk management practices

Domenico Curcio, Igor Gianfrancesco, Grazia Onorato, Michele Modina
May 2022 - n. 5
Keywords: Risk management, rischio di tasso di interesse del portafoglio bancario, regolamentazione e vigilanza bancaria, back-testing
Jel codes: G21, G28, G32

The regulation of interest rate risk in the banking book has been going through a relevant evolution. The study examines the introduction of six new interest rate shock scenarios, the adoption of a minimum post-shock interest rate, which is negative and increasing with the maturity, in the case of downward scenarios, and the provision of a new transmission criterion of the interest rates shock to the bank economic value. Based on the results referred to a sample of less significant Italian banks, observed in the period 2006-2020, the new rules prove to be more prudential and better suited to anticipate the evolution of a bank's actual exposure.

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