Addressing interest-rate risk in the banking book (IRRBB), the Basel Committee has decided not to advance possible capital charges outlined in an initial consultation. Instead it is updating its IRRBB principles to lay out a new set of principles that include an array of more stringent guidelines regarding not only capital, but also IRR management, disclosure, and sanctions. The Basel approach also focuses on IRR stress-testing, laying out numerous criteria for company-run tests designed to identify vulnerabilities under even acute stress that then could be remedied with more capital or other actions. The U.S. supervisory and company-run tests already include an IRR component along with many of the internal controls stipulated by Basel for risk management, although U.S. stress tests may be refined to reflect the specific IRR provisions not yet included in current test scenarios.
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