Interest rate dataInterest rate data

Interest rate data

1. For the purpose of determining the IRRBB capital requirement, the interest rates used and modelled by an ADI must include at least one yield curve in each material currency. Immaterial currencies may be combined into one or more groups and modelled using a single yield curve for each group based on a currency, or composite of currencies, broadly reflective of the interest rate characteristics of the group.
2. An ADI’s IRRBB measurement approach must model each yield curve using a model that appropriately captures variation in the volatility of interest rates along the curve.
3. Regardless of the type of model used, interest rate assumptions will depend to a significant degree on the ADI’s observation history of interest rates. The observation period must be at least six years, except where the ADI provides evidence that the use of a shorter observation period would provide a more appropriate distribution of future interest rates. Interest rate assumptions are not required to directly or exactly reflect the characteristics of the observation period but, where they do not, the basis for the difference must be explained and justified.
4. An ADI must update its interest rate data sets regularly and reassess its data sets whenever the interest rate environment is subject to major change.
5. Correlations between interest rates on the same and different yield curves must be recognised and included in an ADI’s internal model. Correlation assumptions must be sound, justifiable and implemented with integrity.
6. An ADI must document the source of the interest rates used. If a derived or modified yield curve is used, the basis of derivation or modification must be documented.