Interest Rate Risk

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Basel Committee
on Banking Supervision

Consultative Document
Principles for the
Management and Supervision
of Interest Rate Risk
Supporting Document
to the New Basel Capital Accord
Issued for comment by 31 May 2001
January 2001

Superseded document

Superseded document

Table of contents

SUMMARY .............................................................................................................................................. 1 I.

SOURCES AND EFFECTS OF INTEREST RATE RISK ............................................................. 5 A.
SOURCES OF INTEREST RATE RISK ........................................................................................ 5 B.
EFFECTS OF INTEREST RATE RISK.......................................................................................... 6

II.

SOUND INTEREST RATE RISK MANAGEMENT PRACTICES ................................................. 8

III.

BOARD AND SENIOR MANAGEMENT OVERSIGHT OF INTEREST RATE RISK................... 9 A.
B.
C.

BOARD OF DIRECTORS........................................................................................................... 9 SENIOR MANAGEMENT ......................................................................................................... 10 LINES OF RESPONSIBILITY AND AUTHORITY FOR MANAGING INTEREST RATE RISK .................. 10

IV.

ADEQUATE RISK MANAGEMENT POLICIES AND PROCEDURES ...................................... 12

V.

RISK MEASUREMENT, MONITORING AND CONTROL FUNCTIONS ................................... 14 A.
B.
C.
D.

INTEREST RATE RISK MEASUREMENT..................................................................................... 14 LIMITS ................................................................................................................................. 16 STRESS TESTING ................................................................................................................. 17 INTEREST RATE RISK MONITORING AND REPORTING ............................................................. 18

VI.

INTERNAL CONTROLS ............................................................................................................. 19

VII.

INFORMATION FOR SUPERVISORY AUTHORITIES .............................................................. 21

VIII.

CAPITAL ADEQUACY................................................................................................................ 22

IX.

DISCLOSURE OF INTEREST RATE RISK................................................................................ 23

X.

SUPERVISORY TREATMENT OF INTEREST RATE RISK IN THE BANKING BOOK ........... 24

ANNEX 1

INTEREST RATE RISK MEASUREMENT TECHNIQUES .............................................. 27 A. REPRICING SCHEDULES ................................................................................................... 27 B. SIMULATION APPROACHES ............................................................................................... 29 C. ADDITIONAL ISSUES......................................................................................................... 30

ANNEX 2

MONITORING OF INTEREST RATE RISK BY SUPERVISORY AUTHORITIES........... 32 A. TIME BANDS .................................................................................................................... 32 B. ITEMS ............................................................................................................................. 33 C. SUPERVISORY ANALYSIS.................................................................................................. 33

ANNEX 3

THE STANDARDISED INTEREST RATE SHOCK.......................................................... 35

ANNEX 4

AN EXAMPLE OF A STANDARDISED FRAMEWORK .................................................. 37 A. METHODOLOGY...
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