Norma vigente
On 24 April 2023, the Banco de España adopted, by means of an Executive Committee resolution, the EBA/GL/2022/14 guidelines specifying criteria for the identification, evaluation, management and mitigation of the risks arising from potential changes in interest rates and of the assessment and monitoring of credit spread risk, of institutions’ non-trading book activities.
Since these guidelines were adopted, the need has arisen for a series of amendments to be made to the Guidelines on the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP) (hereafter, the “Guidelines”), in order to ensure that the supervisory expectations therein are consistent and aligned with the EBA/GL/2022/14 guidelines and with Directive (EU) 2019/878, specifically, the expected content and scope of the internal capital adequacy assessment report (ICAAP/ILAAP report) as regards interest rate risk and credit spread risk from institutions’ non-trading book activities (IRRBB and CSRBB, respectively).
The proposed amendments include adding a reference to the requirement that institutions explicitly assess the materiality of CSRBB and provide information in the ICAAP/ILAAP report on how they quantify, value and, where appropriate, allocate internal capital for CSRBB. In addition, they should include CSRBB in the stress testing reflected in their ICAAP reports.
In turn, the simplified option for calculating the capital required for IRRBB is brought into line with the definition of the supervisory outlier test (SOT) in Directive (EU) 2019/878, where the sensitivity threshold for economic value of equity (EVE) is lowered to 15% of Tier 1 capital, from 20% of institutions’ total own funds. In addition, EVE sensitivities are taken into account in the six scenarios applied to interest rates defined in the Directive.
It is also proposed that when institutions exceed the alert limit set on the sensitivity of earnings (including net interest income and changes in the market value of fair value instruments), they should not only identify the measures needed to remedy the situation but also consider the need for allocating additional capital.
Lastly, in line with the Banco de España's remit in adopting the EBA/GL/2022/14 guidelines, the inclusion of specialised lending institutions (SLIs) in the subject scope of these Guidelines is explicitly reflected, albeit only for SLIs that prepare ICAAP/ILAAP reports pursuant to Article 29 of Royal Decree 309/2020.
In view of the foregoing, the Executive Commission of the Banco de España adopted the following resolutions at its meeting on 19 February 2024:
1.1. Paragraph 2.3 of the Guidelines shall read as follows:
“2.3 Subject scope
In general, these guidelines are addressed to consolidated groups of credit institutions established in Spain and considered less significant institutions for the purposes of Regulation (EU) 1024/2013, without prejudice to the provisions of paragraph 4.1, and to specialised lending institutions (SLIs) required by the Banco de España to prepare an annual internal capital adequacy assessment report, pursuant to Article 29 of Royal Decree 309/2020.”
1.2. The first paragraph of Section 4.6.1 of the Guidelines (Stress test scenarios: capital) is amended as follows:
“Each year institutions should conduct, and reflect in their ICAAP/ILAAP report, a general stress test, based on macroeconomic aspects, considering a scenario of general deterioration of economic activity stemming from an adverse performance of GDP, interest rates, credit spreads, employment and house prices combined.”
1.3. Paragraph 4.8.2.5 of the Guidelines shall read as follows:
“4.8.2.5 IRRBB
To assess capital needs for interest rate risk in the banking book, institutions may use the simplified option of calculating the difference between the decrease in economic value (in the most adverse of the scenarios set out in Article 68 bis(1)(a) of Law 10/2014) and the lower of the sum of the recurring income of the last three years or 15% of the institution’s Tier 1 capital.
For these purposes, recurring income should be calculated drawing on the data contained in the statement of profit or loss F2.00 in Circular 4/2004, as follows:
Recurring income = Net interest income (NII) + Dividends + Fees & Commissions – Administrative expenses – Amortisation/Depreciation.
In addition, institutions should indicate in the ICAAP/ILAAP report the impact of unfavourable movements in interest rates (in the most adverse of the scenarios considered in Article 68bis(1)(b) of Law 10/2014) on earnings one year ahead. This impact should be calculated as the sum of the impacts (sensitivities) on net interest income, the fair value of banking book portfolios measured at fair value through profit or loss or other comprehensive income, the hedge-accounting derivatives in these portfolios and other derivatives in the banking book which are not designated as accounting hedges. If this impact amounts to more than 50% of the recurring income expected for the following year, the institution should indicate the management measures planned to mitigate that impact and assess the need for additional capital for this purpose, avoiding double counting[1] of the capital allocated for economic value.
In any event, the supervisor will assess the management measures envisaged to mitigate this impact in conjunction with the institution’s estimate of the capital needed.
If the institution uses a different approach, the ICAAP/ILAAP report should contain a brief mention of the methodology used and the results obtained, which will be compared with those of the previous simplified option.”
1.4. Paragraph 4.8.2.6 of the Guidelines shall read as follows:
“4.8.2.6 Other risks
Insofar as institutions are subject to any material risks other than those described above, they should include in this section details of such risks and of the amount of capital needed to cover them. In this paragraph, institutions are expected to explicitly assess the materiality of credit spread risk from non-trading book activities (CSRBB), providing information about the way they quantify, value and, where appropriate, allocate internal capital to the CSRBB they incur.”
1.5. The definition of CSRBB is added to the Guidelines’ acronym and abbreviation section as follows:
“CSRBB: Credit spread risk from the banking book (referred to in CRD as credit spread risk arising from non-trading book activities)”
The amendments to the Guidelines approved in point 1 above will enter into force on the date of their approval and will be applied by the supervised entities in their ICAAP/ILAAP reports for 31 December 2023.
