OSFI proposed revisions to guideline B-12 on interest rate risk management for banking sector in Canada. The guideline, which was last issued in 2005, provides a risk control framework for managing interest rate risk to prudent level for banks, bank holding companies, federally regulated trust and loan companies, and cooperative retail associations. Comments are due by November 19,2018. OSFI is targeting implementation of the revised guideline for January 01, 2020.
The proposed revisions focus on the following:
- Additional guidance for an IRRBB governance process of an institution
- Descriptions of expectations of OSFI regarding IRRBB measurement, the development of stress and shock scenarios, and key behavioral and modeling assumptions institutions should consider
- The introduction of an outlier/materiality test that compares the maximum loss of an institution to its capital base under various prescribed scenarios
The draft guideline endorses the guidance issued in 2004 by BCBS through the “Principles for the Management and Supervision of Interest Rate Risk.” BCBS had also published revisions to the framework for Interest Rate Risk in the Banking Book (IRRBB) in April 2016, with the revised framework expected to be implemented by 2018. The draft guideline of OSFI incorporates most of the BCBS guidance to reflect changes in the market and the methods expected to be used by institutions for measuring, managing, and monitoring IRRBB, along with the updates related to supervisory practices.
Comment Due Date: November 19, 2018
Effective Date: January 01, 2020 (Expected)
Keywords: Americas, Canada, Banking, IRRBB, Interest Rate Risk, Basel III, Guideline B-12, OSFI
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