Summary of findings and scoring
Following the above assessments, competent authorities should form a view on the institution’s IRRBB. This view should be reflected in a summary of findings, accompanied by a score based on the considerations specified in Table 7. If, based on the materiality of certain risk subcategories, the competent authority decides to assess and score them individually, the guidance provided in this table should be applied, as far as possible, by analogy.
Table 7. Supervisory considerations for assigning a score to IRRBB
Risk score | Considerations in relation to Considerations in relation to Supervisory view adequate management and inherent risk controls |
1 | • The sensitivity of the economic • There is consistency value to changes in interest rates between the institution’s There is a low risk of is not material/very low. interest rate risk policy significant prudential • The sensitivity of earnings to and strategy and its impact on the changes in interest rates is not overall strategy and risk institution material/very low. appetite. considering the level • The sensitivity of the economic • The organisational of inherent risk and value and earnings to changes in framework for interest the management and the underlying assumptions (e.g. rate risk is robust with controls. in the case of products with clear responsibilities and a embedded customer optionality) clear separation of tasks is not material/very low. between risk-takers and |
2 | management and control • The sensitivity of the economic functions. value to changes in interest rates • Interest rate risk There is a medium- is low to medium. measurement, monitoring low risk of significant • The sensitivity of earnings to and reporting systems are prudential impact on changes in interest rates is low to appropriate. the institution medium. • Internal limits and the considering the level • The sensitivity of the economic control framework for of inherent risk and value and earnings to changes in interest rate risk are the management and the underlying assumptions (e.g. sound and are in line with controls. in the case of products with the institution’s risk embedded customer optionality) strategy and risk appetite. is low to medium. |
3 | • The sensitivity of the economic • There is inconsistency value to changes in interest rates between the institution’s There is a medium- is medium to high. interest rate risk policy high risk of significant • The sensitivity of earnings to and strategy and its prudential impact on changes in interest rates is overall strategy and risk the institution medium to high. appetite. considering the level • The sensitivity of the economic • The organisational of inherent risk and value and earnings to changes in framework for interest the management and the underlying assumptions (e.g. rate risk does not controls. in the case of products with sufficiently separate embedded customer optionality) responsibilities and tasks is medium to high. between risk-takers and |
4 | • The sensitivity of the economic There is a high risk of management and control value to changes in interest rates significant prudential functions. is high. impact on the • Interest rate risk • The sensitivity of earnings to institution measurement, monitoring changes in interest rates is high. considering the level and reporting systems are • The sensitivity of the economic of inherent risk and not undertaken with value and earnings to changes in |
Risk score | Considerations in relation to Considerations in relation to Supervisory view adequate management and inherent risk controls |
the management and the underlying assumptions (e.g. sufficient accuracy and controls. in the case of products with frequency. embedded customer optionality) • Internal limits and the is high. control framework for interest rate risk are not in line with the institution’s risk strategy and risk appetite. |