New guidance from OSFI on interest rate risks

New guidance from federal banking regulators aims to ensure that banks properly manage the risk posed by interest rate moves.

On Thursday, the Office of the Superintendent of Financial Institutions (OSFI) published the final version of new guidance on interest rate risk in the banking book (IRRBB) that is being revised to reflect the latest global standards from the Basel Committee on Banking Supervision.

Among other things, the revised guidance sets out OSFI’s expectations for measuring these risks, including the under stress and shock scenarios; boosts guidance for banks’ governance processes; and introduces an outlier/materiality test.

“If not managed appropriately, interest rate risk can be a significant threat to an institution’s capital base and its earnings,” Carolyn Rogers, assistant superintendent of OSFI’s regulation sector, said in a statement.

“The revisions to this guideline will assist federally regulated deposit-taking institutions in prudently managing these risks,” she added.

The revised guidance will take effect Jan. 1, 2020 for large, domestic systemically important banks (D-SIBs), and on Jan. 1, 2021 for other banks.

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