Description
BEATA LUBINSKA, PhD, is a financial engineer with over 15 years of practical experience gained in international financial institutions such as GE Capital, Deloitte and Standard Chartered Bank based both in Milan and London. She is a Treasurer at Allica Bank focused on proactive management of financial risks and Balance Sheet Management, and a member of the BTRM Faculty founded by Professor Moorad Choudhry in London. She is the author of Asset Liability Management Optimisation: A Practitioner’s Guide to Balance Sheet Management and Remodelling, also published by Wiley. Beata holds a PhD from Wroclaw University of Economics in Poland. Preface vii About the Website viii Introduction 1 Chapter 1 What is IRRBB and why is it important? 6 Subcategories of interest rate risk 8 Regulatory overview for IRRBB – what has changed? 17 ECB 2017 IRRBB stress test 21 Interest rate shocks 24 Chapter 2 How to identify and measure Interest Rate Risk in the Banking Book 29 Identification of IRRBB – case studies of the exposure to IRRBB 29 The dual nature of IRRBB 44 Exposure to short-term interest rate risk – maturity gap analysis 45 Maturity gap analysis from the economic value perspective 63 Time bucket sensitivity analysis – PV01 68 Duration gap analysis 69 IRRBB metrics 73 Credit Spread Risk in the Banking Book (CSRBB) 81 Chapter 3 How to manage IRRBB 84 Hedging instruments for IRRBB 84 Why consider interest rate swaps? 98 Natural hedging and hedging through derivatives 98 Hedging strategies 103 Chapter 4 Behaviouralisation of items without deterministic maturity and their impact on IRRBB 117 The significance and impact of behavioural issues in the banking book 117 The reason for modelling CASA under IRRBB 118 The impact of early redemption of fixed rate assets on IRRBB 121 Basic approaches for the modelling of NMDs 121 Basic approaches for the modelling of statistical prepayment on the asset side 130 Model risk 133 Chapter 5 Interest rate risk and asset liability management 136 Management of IRRBB under strategic ALM – proactive management of IRRBB 136 Setting up the target profile and integrated management of liquidityand interest rate risk through the application of numerical optimisation technique 143 Setting up the funding strategy for a bank taking into consideration the hedging requirements 149 IRRBB and funds transfer pricing 153 Comprehensive and feasible IRRBB strategy 171 Management of the intragroup interest rate risk 172 Chapter 6 IRRBB stress test, reverse stress test and ICAAP 175 IRRBB stress testing 175 ICAAP – assessment of the internal capital to cover IRRBB 185 Chapter 7 IRRBB governance and framework 190 Risk Appetite Statement (RAS) 190 Appendix 1: Example of IRRBB policy aligned with the requirements of BCBS Standards 197 Appendix 2: Example of IRRBB model manual 211 References 239 Index 241
