An update on stress testing requirements for the interest rate risk arising from non-trading book activities (IRRBB)


Circular CSSF 20/762: An update on stress testing requirements for the interest rate risk arising from non-trading book activities (IRRBB)

21 December 2020

Regulatory News Alert

Context and objectives

On 11 December 2020, the Commission de Surveillance du Secteur Financier (CSSF) published Circular CSSF 20/762 amending CSSF Circular 08/338 on the implementation of a stress test to assess the interest rate risk arising from non-trading book activities.

The changes mainly concern the nature and specification of the stress test introduced by the EBA guidelines (EBA/GL/2018/02). In accordance with these guidelines, institutions shall measure their exposure to interest rate risk inherent to non-trading activities in terms of changes of the economic value of equity (EVE) but also in terms of net interest income (NII). Regarding NII, the CSSF is expecting that institutions should regularly (at least quarterly) calculate the impact on their forecasted NII expected within 12 months of a sudden parallel +/-200 basis points shift of the yield curve. If, for a given currency, the standard shock implies a negative interest rate assumption, the relevant rates should no longer be limited to 0%.

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In case of a breach of the prescribed limits[1], institutions are now required to answer additional questions included in the templates “IRRBB outlier questions – N”. Non-outlier institutions could also be requested to complete the template “IRRBB outlier questions - N” upon specific request of the CSSF.

The new requirements apply with immediate effect. In addition to the stress test being performed quarterly, institutions are now required to submit the results annually to the CSSF based on the institution’s situation as at 31 December of each year. For the first submission, which covers the financial situation as of 31 December 2020, by way of derogation from point 14 of CSSF Circular 08/338 as amended, the transmission deadline is 15 March 2021. After the first submission, institutions shall submit the results to the CSSF by 15 February of each year at the latest. To report this information to the CSSF, the institution shall use the regulatory templates available on the CSSF website.

In addition to the results of the EVE and NII stress tests, institutions are also requested to disclose information on optionality: institutions should provide the proportion of assets and liabilities in the banking book subject to automatic and embedded behavioral optionality.

Next steps

The new requirements apply with immediate effect. For the first submission, relating to the financial situation as at 31 December 2020, by derogation to point 14 of Circular CSSF 08/338 as amended, the deadline for transmission is set at 15 March 2021.

What does this mean for my institution?

To adapt to the latest European guidelines, institutions may have to undertake reviews of their IRRBB calculation and reporting. Such reviews should, for illustrative purposes, include an IRRBB identification and measurement to manage and mitigate risks arising from their IRRBB exposures that affect their earnings, and implement the amended templates into their IRRBB production.

If your institution is a first-time submitter, the urgency for submission may be a critical matter to consider to meet the 15 March 2021 deadline.

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[1] Where the decline in EVE is greater than 20% of the institution’s own funds or where the decline in EVE is greater than 15% of the institution’s Tier 1 capital under any of the six scenarios.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.


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