Recalibration of shocks for interest rate risk in the banking book

The Basel Committee on Banking Supervision has finalised targeted adjustments to its standard on interest rate risk in the banking book (IRRBB).

The Committee has made targeted adjustments to the specified interest rate shocks in the IRRBB standard, consistent with commitments in the standard to periodically update their calibration. It has also incorporated targeted adjustments to the current methodology used to calculate the shocks, including:

• Expansion of the time series used in the calibration from December 2015 to December 2023.
• Replacement of the global shock factors with local shock factors calculated directly for each currency using the averages of absolute changes in interest rates calculated over a rolling six-month period.
• Move from a 99^th percentile value in determining the shock factor to a 99.9^th percentile value, to maintain sufficient conservatism in the proposed recalibration.
• Reducing the rounding of the interest rate shocks from a multiple of 50 basis points to a multiple of 25 basis points.

These targeted changes have been implemented to address problems with how the current methodology captures interest rate changes during periods when rates are close to zero. The changes are unrelated to the Committee's ongoing analytical work on IRRBB following the March 2023 banking turmoil.

The revised standard should be implemented by 1 January 2026. The revised text will be incorporated into the consolidated Basel Framework.