Commission Delegated Regulation (EU) 2024/857 of 1 December 2023 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying a standardised methodology and a simplified standardised methodology to evaluate the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of an institution’s non-trading book activities

CHAPTER I

GENERAL PROVISIONS

Article 1

Definitions

For the purposes of this Regulation, the following definitions apply:

(1) ‘notional repricing cash flow’ means any of the following: (a) the amount of principal at the time of its repricing, whereby such repricing is deemed to occur on the earlier of the following dates: (i) the date on which the institution or its counterparty is entitled to unilaterally change the interest rate; (ii) the date on which the interest rate of a floating rate instrument changes automatically in response to a change in an interest rate benchmark as defined in Article 3(1), point (22), of Regulation (EU) 2016/1011 of the European Parliament and of the Council (¹); (b) in the absence of a repricing as referred to in point (a), the amount of principal at the time of repayment of the principal or part of it; (c) an interest payment on that part of the principal that has not yet been repaid or repriced;

(2) ‘repricing date’ means the date at which a notional repricing cash flow occurs;

(3) ‘risk free interest rate’ means, for a given currency, the interest rate which corresponds to a maturity on a yield curve that does not include instrument-specific or entity-specific credit spreads or liquidity spreads;

(4) ‘fixed rate instrument’ means an instrument that generates cash flows of interest payments that are pre-determined based on a fixed interest rate until the point of its contractual maturity;

(5) ‘floating rate instrument’ means an instrument the interest rate of which is reset at pre-determined dates, either in response to a change in an interest rate benchmark as defined in Article 3(1), point (22), of Regulation (EU) 2016/1011, or in an institution’s internally managed index;

(6) ‘automatic interest rate option’ means an explicit or implicit option as referred to in Article 325e(2), second subparagraph, of Regulation (EU) No 575/2013 of the European Parliament and of the Council (²), including an option under which the institution is likely to provide its counterparty with a pay-out irrespective of a contractual obligation, that complies with all of the following: (a) the pay-out of the option is interest rate sensitive; (b) the exercise of the option is purely driven by the monetary incentives of the option holder;

(7) ‘behavioural interest rate option’ means an option as referred to in Article 325e(2), second subparagraph, of Regulation (EU) No 575/2013, including an option under which the institution is likely to provide its counterparty with a pay-out irrespective of a contractual obligation, and that complies with all of the following: (a) the pay-outs of the options are interest rate sensitive; (b) the exercise of the option is not purely driven by the monetary incentive of the counterparty but is dependent on that counterparty’s behaviour;

(8) ‘non-maturity deposit’ means a liability without a maturity date, in which the depositor is free to withdraw the deposit at any point in time;

(9) ‘retail deposit’ means a retail deposit as defined in Article 411, point (2), of Regulation (EU) No 575/2013;

(10) ‘retail transactional deposit’ means either of the following: (a) a retail non-maturity deposit in a transactional account, which is an account in which salaries, income or expenses (‘transactions’) are regularly credited and debited; (b) a retail non-maturity deposit which bears no interest, even in a high interest rate environment;

(11) ‘retail non-transactional deposit’ means a retail non-maturity deposit that is not held in a transactional account or that does bear interest;

(12) ‘wholesale deposit’ means a deposit which is not a retail deposit;

(13) ‘stable non-maturity deposit’ means the part of the non-maturity deposit that is likely to remain undrawn under the interest rates prevailing at the time of applying the standardised methodology for the slotting of the notional repricing cash flows;

(14) ‘pass-through rate’ means the percentage of change of the market interest rate that an institution assigns to a deposit to maintain the same level of stable deposits under the interest rates prevailing at the time of applying the standardised methodology for the slotting of the notional repricing cash flows;

(15) ‘core component’ means the part of a stable non-maturity deposit that is unlikely to reprice, even under significant changes in the interest rate environment;

(16) ‘non-core component’ means the part of the non-maturity deposit other than its core component;

(17) ‘geographical location’ means the country of incorporation of those debtors or depositors that are legal persons, or the country of residence of those debtors or depositors that are natural persons;

(18) ‘reference term’ means the period in reference to which an instrument reprices.

Article 2

Non-trading book positions included in the evaluation

Institutions shall, for the purposes of the standardised methodology and the simplified standardised methodology referred to in Article 84(1) of Directive 2013/36/EU, for each currency in which the institution has a position that is material as referred to in Article 3, evaluate all non-trading book positions. Those non-trading book positions shall include the following:

(a) non-trading book positions in financial assets;

(b) non-trading book positions in liabilities;

(c) non-trading book positions in off-balance sheet items.

The non-trading book positions referred to in paragraph 1 shall include all of the following:

(a) interest rate derivatives;

(b) non-interest rate derivatives for which the cash flows are determined in total or in part by referencing an interest rate;

(c) pension obligations and pension plan assets, except where their interest rate risk is captured in another risk measure;

(d) interest rate-sensitive assets, other than those referred to in points (a), (b) and (c), and that are not deducted from Common Equity Tier 1 capital;

(e) interest rate-sensitive liabilities, other than those referred to in points (a), (b) and (c), that are neither Common Equity Tier 1 instruments as referred to in Article 28 of Regulation (EU) No 575/2013, nor other perpetual instruments without any call dates;

(f) interest rate sensitive off-balance sheet items, other than those referred to in points (a), (b) and (c);

(g) small trading book positions as referred to in Article 94 of Regulation (EU) No 575/2013, except where their interest rate risk is captured in another risk measure.

For the purposes of point (e), interest rate-sensitive liabilities shall include non-remunerated deposits.

Article 3

Materiality of non-trading book positions

Institutions shall consider a non-trading book position to be material in either of the following cases:

(a) the accounting value of assets or liabilities denominated in a currency amounts to at least 5 % of the total non-trading book financial assets or liabilities;

(b) the accounting value of assets or liabilities denominated in a currency amounts to less than 5 % of the total non-trading book financial assets or liabilities where the sum of financial assets or liabilities included in the calculation is lower than 90 % of the total non-trading book financial assets, excluding tangible assets, or liabilities.

Article 4

Classification of the scenarios

For the purposes of the identification, evaluation, management and mitigation of the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of an institution’s non-trading book activities, institutions shall classify the scenarios, including the supervisory shock scenarios referred to in Article 1 of Commission Delegated Regulation (EU) 2024/856 (³) into one of the following types based on the movement of the interest rate:

(a) parallel shocks, which shall be either of the following: (i) a shock of increased interest rates in parallel across all maturities; (ii) a shock of decreased interest rates in parallel across all maturities;

(b) shocks involving rotations to the term structure, which shall be either of the following: (i) a decrease of the interest rate at long-term maturities and increase of the interest rate at short-term maturities, leading to a flattening of the interest rate curve; (ii) an increase of the interest rate at long-term maturities and decrease of the interest rate at short-term maturities, leading to a steepening of the interest rate curve;

(c) uneven shocks, which shall be either of the following: (i) a shock of increased interest rates that is greater at short-term maturities; (ii) a shock of decreased interest rates that is greater at short-term maturities.

CHAPTER II

STANDARDISED METHODOLOGY FOR EVALUATING THE RISKS FOR THE ECONOMIC VALUE OF EQUITY OF AN INSTITUTION’S NON-TRADING BOOK ACTIVITIES

Article 5

General requirements for allocating notional repricing cash flows

When using the standardised methodology for evaluating the risks arising from potential changes in interest rates that affect the economic value of equity of their non-trading book positions, institutions shall allocate the notional repricing cash flows of their non-trading book positions to the relevant repricing time buckets referred to in point 1 of the Annex, as follows:

(a) for fixed rate instruments, in accordance with Article 6;

(b) for floating rate instruments, in accordance with Article 7;

(c) for non-maturity deposits, in accordance with Article 8;

(d) for fixed rate loans subject to the risk of early repayment, in accordance with Article 9;

(e) for fixed rate term deposits subject to the risk of early redemption, in accordance with Article 10;

(f) for derivative instruments without optionality, in accordance with Article 11;

(g) for instruments other than those referred to in points (a) to (f), in accordance with Article 12.

Institutions that exclude commercial margins and other spread components from the notional repricing cash flows shall perform all of the following:

(a) use a transparent methodology to identify the risk-free interest rate at origination of each instrument, and apply that methodology consistently across business units;

(b) ensure that the exclusion of commercial margins and other spread components from the notional repricing cash flows is consistent with how the institution manages and hedges interest rate risk in the non-trading book;

(c) notify the exclusion of commercial margins and other spread components to the competent authority.

When allocating the notional repricing cash flows of their non-trading book positions as referred to in paragraph 1, institutions shall:

(a) not take into account the impact of an embedded optionality of an automatic interest rate option on notional repricing cash flows;

(b) take into account the impact of an embedded optionality of a behavioural interest rate option on notional repricing cash flows.

Article 6

Fixed rate instruments

Article 7

Floating rate instruments

Institutions shall allocate the notional repricing cash flows deriving from non-trading book positions in floating rate instruments to the relevant repricing time buckets referred to in point 1 of the Annex by repricing date, as follows:

(a) cash flows deriving from interest payments other than payments of the spread component up to the next repricing date, as per the contractual agreement;

(b) the remaining principal amount, as per the contractual agreement;

(c) spread components up to the final contractual maturity, irrespective of any repricing of the non-amortised principal, except where those spread components are excluded in accordance with Article 5(2), second subparagraph.

Article 8

Non-maturity deposits

Institutions shall classify non-maturity deposits, depending on the type of counterparty, into the following categories:

(a) retail non-maturity deposits, further classified into the following: (i) retail transactional deposits; (ii) retail non-transactional deposits;

(b) wholesale non-maturity deposits, further classified into the following: (i) wholesale deposits of financial customers; (ii) wholesale non-financial deposits.

Institutions shall distinguish:

(a) the stable from the non-stable part of the deposits referred to in paragraph 1, points (a)(i), (a)(ii), and (b)(ii) using observed changes of the volume of the deposits due to upward and downward movements of the risk-free interest rate for a period of at least the preceding 10 years;

(b) the core and the non-core component of the stable part of the non-maturity deposits referred to in paragraph 1.

To determine the amount of the non-core component of the stable part of the non-maturity deposits as referred to in point (b), institutions shall multiply the amount of all stable non-maturity deposits by the pass-through rate.

When assessing the pass-through rate referred to in paragraph 2, second subparagraph, institutions shall consider the following elements, having also regard to non-trading book positions with similar characteristics:

(a) the current level of interest rates;

(b) the spread between the institution’s offer rate and market rate;

(c) competition from other firms;

(d) the institution’s geographical location;

(e) demographic and other relevant characteristics of the institution’s customer base;

(f) the unlikely repricing of the core component of the stable part of the non-maturity deposits, even under significant changes in the interest rate environment.

When applying paragraphs 2 to 5, institutions shall apply the following caps on the proportion of the core component of the stable part of the non-maturity deposits, calculated in accordance with paragraphs 2 and 3:

(a) 90 % for retail transactional deposits as referred to in paragraph 1, point (a)(i);

(b) 70 % for retail non-transactional deposits as referred to in paragraph 1, point (a)(ii);

(c) 50 % for wholesale non-financial deposits as referred to in paragraph 1, point (b)(ii).

Institutions shall allocate the core components of the non-maturity deposits consistently over time to the relevant repricing time buckets referred to in point 1 of the Annex, based on observed internal data and subject to the following maturity restrictions calculated on a weighted average basis:

(a) 5 years, for the non-maturity deposits referred to in paragraph 1, point (a)(i);

(b) 4,5 years, for the non-maturity deposits referred to in paragraph 1, point (a)(ii);

(c) 4 years, for the non-maturity deposits referred to in paragraph 1, point (b)(ii).

Article 9

Fixed rate loans that are subject to the risk of early repayment

Institutions shall consider fixed rate loans to retail customers as subject to the risk of early repayment where the borrower is able to repay part or all of the outstanding principal before the contractually agreed repayment date or the contractual maturity date of the principal either:

(a) without bearing the economic costs for such repayment; or

(b) bearing the economic costs only above a prepayment threshold.

For the purposes of the first subparagraph, institutions may set the prepayment rate at 0 where the total of both the fixed rate loans referred to in paragraph 1 and of the fixed rate assets referred to in paragraph 7 is less than 5 % of the non-trading book positions that are accounted for as assets in accordance with the applicable accounting framework.

Institutions shall adjust the conditional prepayment rate estimated in accordance with paragraph 2 as follows:

(a) in scenarios that prescribe an increase in interest rates as referred to in Article 4, points (a)(i), (b)(ii), and (c)(i), institutions shall multiply the conditional prepayment rate by 0,8;

(b) in scenarios that prescribe a decrease in interest rates as referred to in Article 4, points (a)(ii), (b)(i), and (c)(ii), institutions shall multiply the conditional prepayment rate by 1,2.

For each repricing time bucket as referred to in point 1 of the Annex, institutions shall estimate the expected amount of prepaid loans per repricing time bucket as the product of:

(a) the outstanding amount of the fixed rate loans referred to in paragraph 1 of a certain homogeneous product type denominated in a certain currency;

(b) the conditional prepayment rate determined in accordance with paragraph 2, multiplied by the length of the applicable repricing time bucket referred to in point 2 of the Annex and adjusted in accordance with paragraph 3.

For the purposes of point (a), institutions shall not regard amounts matured or prepaid at a time earlier than the lower limit of the repricing time bucket as outstanding amounts.

Article 10

Fixed rate term deposits that are subject to the risk of early redemption

Institutions shall consider fixed rate term deposits as fixed rate term deposits subject to the risk of early redemption where both of the following applies:

(a) those fixed rate term deposits constitute retail deposits;

(b) the depositor holds the option to redeem any outstanding amount of the fixed rate term deposits before the contractual maturity date of the deposit.

Where the wholesale depositor holds the option to redeem any outstanding amount of the deposit before its contractual maturity date and the conditions set out in paragraph 2 are not met, institutions shall treat that option as an embedded automatic option in accordance with Article 13.

For the purposes of the first subparagraph, institutions may set the baseline cumulative term deposit redemption rate at 0 where the total of the fixed rate term deposits referred to in paragraph 1 is smaller than 5 % of the non-trading book positions that are accounted for as liabilities in accordance with the applicable accounting framework.

Institutions shall adjust the baseline cumulative term deposit redemption rate for the fixed rate term deposits estimated in accordance with paragraph 4 to the applicable scenarios as follows:

(a) in scenarios that prescribe a decrease of the short-term interest rates as referred to in Article 4, points (a)(ii), (b)(ii), and (c)(ii), institutions shall multiply the redemption rate by 0,8;

(b) in scenarios that prescribe an increase of the short-term interest rates as referred to in Article 4, points (a)(i), (b)(i), and (c)(i), institutions shall multiply the redemption rate by 1,2.

Article 11

Derivative instruments without optionality

Institutions shall allocate the notional repricing cash flows to the relevant repricing time buckets referred to in point 1 of the Annex.

Article 12

Non-performing exposures and fixed rate loan commitments to retail counterparties

For the purposes of the first subparagraph, institutions shall calculate the non-performing exposures ratio by dividing the amount of non-performing debt securities, loans and advances, as referred to in Article 47a(3) of Regulation (EU) No 575/2013, by the total amount of gross debt securities, loans and advances.