Interest Rate Risk in the Banking Book

Thursday, October 18th

09.00 - 09.15 Welcome

09.15 - 12.15

Introduction

  • 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

Refresher 1

  • 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

Draft Revised CRD and CRR

  • CRD - Articles 84, 98
  • CRR - Articles 106, 448

12.15 - 13.15 Lunch

13.15 - 17.00

BCBS D368

  • 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

Refresher 2

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

BCBS D368 - The standardised Framework

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

Friday, October 19th

09.00 - 12.15

Calculation of the standardised EVE risk measure and NII

  • 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

Managing Interest Rate Risk

  • Hedging duration risk
    • Bonds
    • Futures
    • Swaps
  • Hedging convexity risk
    • Options
  • Simulation Models, Monte Carlo and option pricing
    • Behavioural Options

12.15 - 13.15 Lunch

13.15 - 17.00

Stress Testing

  • Regulatory requirements
  • A Monte Carlo Solution
  • Bayesian Solutions
    • Conditional probabilities of scenarios
    • Bayesian Networks

Related Topics

  • FTP/LTP
  • Risk Appetite Frameworks
  • Comparison with revised market risk rules for the trading book
    • Introduction to FRTB
    • Trading book/banking book boundary definition under FRTB
    • Risk transfers from banking book to trading book
    • Standardised approach for interest rate risk under FRTB
    • Liquidity Horizons

Evaluation and Termination of the Course

  Site Map    Privacy Policy and Cookies    Mobile Version    Follow us on LinkedIn
COPYRIGHT © 2018 MONECO