Swedish regulator ups interest risk sensitivity in new Pillar 2 proposal

Sweden’s banking regulator is proposing a new method for assessing capital contributions within Pillar 2 for interest rate risks outside the trading book.

Finansinspektionen (FI) announced the proposals in a consultation paper on 11 June.

FI suggests that institutions should, at least quarterly, calculate the impact on their economic value of equity (EVE) of six shock scenarios presenting a sudden shift of 200 basis points either way of the yield curve.

The capital requirement for interest rate risk is based on the supervisory outlier test laid out in the European Banking Authority (EBA)’s guidelines for interest rate risk management.

FI says that banks can also use the EBA’s guidelines to model the duration of non-maturity deposits (NMDs) in accounts from non-financial counterparties, but suggested possible modifications.

In one, the regulator proposes that when a bank can prove an NMD will remain in an account for an extended period of time, no more than 10% of the deposited sum can be assumed to have a maximum duration of one year.

Alternatively, FI suggests that if a bank can again show an NMD will remain in an account for a long period, it can assume a maximum of 50% of the total will carry a duration of two months.

The regulator says banks will have to choose between the two options, and will not be able to alter its decision year-to-year.

FI says it drafted the proposals as existing regulations fail to give any capital requirement within the Pillar 1 framework to risk-bearing positions outside the trading inventory, both on and off the balance sheet.

Stakeholders can respond to the paper until 31 August, with FI publishing a final version later this year.


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