Publication details

Interest Rate Risk in the Banking Book (IRRBB) – Forecast quality of the EBA scenarios comparing to the Historical Simulation



Year of publication 2018
Type Article in Proceedings
Conference 15th International Scientific Conference on European Financial Systems 2018
MU Faculty or unit

Faculty of Economics and Administration

Keywords Interest Rate RIsk; Banking Book; IRRBB; Forecast Quality; EBA Guidelines; EBA scenarios; Historical Simulation; Value at Risk
Description Interest rate risk arising from non-trading activities, so called Interest Rate Risk in the Banking Book (IRRBB), becomes more and more important in times of low interest rates. Especially a historical low level of yields within the strategic expansion of maturity transformation stresses the profitability of institutes. Setting a standard for an adequate risk measurement the EBA defined six interest rate risk scenarios. Hence, measuring IRRBB with these scenarios leads to the question whether there is an empirical proof of the forecast quality of these scenarios comparing to the Historical Simulation in a monthly backtesting. In addition, the empirical analysis has the aim to show if the six EBA scenarios generate an adequate forecast quality in case of increasing yields.
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