EBA Standardised Interest Rate Shocks: the ALMIS solution

UK and European Banks should now be managing IRRBB in compliance with the EBA Guidelines. In particular banks should be calculating EVE (a form of Economic Value) from the six prescribed parallel and non-parallel interest rate shock scenarios. The recently enhanced ALMIS® software delivers an automated solution to these Standardised Interest Rate Shocks, making it straightforward to comply with the quarterly test.

System requirements:

The guidelines apply numerous requirements to a bank’s IRRBB risk policies, processes and controls and detailed requirements for the bank’s ‘IRRBB IT system’. Unsurprisingly, the system needs the capability to calculate economic value and earnings-based measures of IRRBB, as well as other measures of IRRBB prescribed by regulators. Other more specific system requirements are complemented by requirements aimed at data quality and integrity. It is hard to envisage achieving compliance with these system requirements without an appropriate ALM solution. A look at how the six standardised interest rate shocks (‘SIRS’) are applied further demonstrates that case …

SIRS calculations:

In calculating the impacts of the shocks a bank should in particular apply a list of stated principles which cover a range of topics, for example:

  • principal and interest cashflows to the next repricing date must be included
  • specific considerations on the treatment of commercial margin
  • instrument-specific interest rate floors should be considered
  • separate calculations for each currency meeting certain materiality tests
  • prescribed curves formulaically derived from the current risk-free curve.

Banks should perform the calculations at least quarterly as prescribed in the guidelines.

Outlier test:

where a decline in EVE exceeds 15% of Tier 1 capital under any of the scenarios the bank must inform its regulator (in addition the measurement should be included in the ICAAP).

ALMIS solution:

ALMIS International has for some time offered a SIRS solution. In the latest in our series of ALMIS International Bank ALM client webinars, the enhanced version of the ALMIS SIRS solution was demonstrated to clients.

How it works:

The ALMIS SIRS tool is an out the box solution, providing banks with easy to use functionality which eliminates manual processes. The software generates the required curves automatically from a single risk-free curve and then calculates and reports the EVE impact for each of the 19 prescribed time buckets for each shock. Impacts on capital and outlier test compliance are included in the suite of standard reports (including separate Basel and EBA reports).

For further information or to arrange a brief demo, please contact us on:

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