CSRBB monitoring assumptions
When measuring CSRBB, institutions should fully understand and document key modelling assumptions. These assumptions should be aligned with business strategies and be regularly tested.
Institutions should take into account the implications of accounting practices for the measurement of CSRBB, in particular for net interest income measures plus market value changes.
If the reliability and stability of diversification assumptions are appropriately validated and documented; diversification between CSRBB and IRRBB may be possible. Under the same condition, diversification assumptions between CSRBB and other risks may be possible. The diversification effects should be estimated conservatively enough to be assumed to be sufficiently stable even in economic downturns and under market conditions that are unfavourable for the institution’s business and risk structure. In any case institutions should have separate assessments of CSRBB and other risks (including IRRBB).
As market conditions, competitive environments and strategies change over time, institutions should review significant measurement assumptions at least annually, and more frequently during rapidly changing market conditions.
For the purpose of CSRBB, institutions should set-up prudent documentation supporting their policies assumptions and procedures, and include a process for keeping them under review. Institutions should understand, for the purpose of CSRBB, the impact of the chosen CSRBB-related investment strategies.