Guidance Note: Prudential Reporting of Interest Rate Risk in the Banking Book (March 2019)

Summary

This is a JFSC guidance note explaining how Jersey incorporated registered deposit takers (JIBs) should complete the interest rate risk in the banking book (IRRBB) section of their prudential return. It sets out a methodology for classifying interest rate mismatch positions into maturity bands and calculating the associated capital requirement, based on the Basel Committee's 2004 principles on interest rate risk management.

• Maturity band reporting: Assets and liabilities must be classified into specific maturity bands by residual maturity, using a worst case basis (latest maturity for assets, earliest for deposit liabilities).
• Currency treatment: Long and short positions in different currencies cannot be offset; a separate return is required for the accounting currency and any currency representing 25% or more of deposit liabilities, with smaller currencies aggregated in the '7.6 IRRBB - Minor' sheet, and currencies under 5% of deposit liabilities may be ignored.
• Derivatives: Interest rate hedging derivatives must be reported as synthetic assets or liabilities in the appropriate maturity bands.
• Asset completion rules: Specific rules govern reporting of deposits with credit institutions, debt securities, overdrafts, loans, mortgages, and derivative contracts by reference to repricing, repayment or settlement dates.
• Liability completion rules: Specific rules govern reporting of call/notice accounts, fixed term deposits, other deposits, bonds issued, capital and reserves, and derivative contracts by reference to repricing, repayment or settlement dates.
• Risk thresholds: Where the calculated interest rate risk exceeds 5% of capital, the JFSC expects this to be specifically addressed within the ICAAP; where it approaches 20% of capital, enhanced mitigation is likely to be required.

The note is technical completion guidance for the prudential return rather than a standalone rule with its own filing deadline; it does not specify a reporting frequency or date within the text itself.

Key obligations

• JIBs must report interest rate mismatch positions in the prudential return classified into specific maturity bands by residual maturity, using a worst case approach to maturity and repricing dates
• JIBs must not offset long and short positions across different currencies and must submit a separate currency return for the accounting currency and any currency representing 25% or more of deposit liabilities
• JIBs must aggregate currencies below the 25% threshold (but at least 5% of deposit liabilities) into the '7.6 IRRBB - Minor' sheet, and may ignore currencies below 5% of total deposit liabilities
• JIBs must report interest rate hedging derivatives as synthetic assets or liabilities in the corresponding maturity bands
• JIBs must follow specific completion rules for reporting accrued interest, non-interest bearing items, deposits, debt securities, overdrafts, loans, mortgages, call/notice accounts, fixed term deposits, bonds, capital and reserves, and derivative contracts within the return
• JIBs must agree treatment of undated assets of material value with the JFSC
• Where reported interest rate risk exceeds 5% of capital, the risk should be specifically addressed within the JIB's ICAAP, with enhanced mitigation expected as risk approaches 20% of capital

Applies to

Jersey incorporated registered deposit takers (JIBs)