EBA sets medium to long term objectives of its IRRBB Heatmap

Evolution of SOT Metrics

The analysis of recent SOT results for both EVE and NII suggests a broadly more stable IRRBB risk profile compared to earlier years. Following the sharp interest rate movements observed in 2022, interest rates then declined to more stable levels, enabling banks to adapt to the challenges of the changed interest rate regime, contributing to greater stability in supervisory metrics.  

The number of outliers has improved for both metrics, while changes in EVE and NII continue to show asymmetrical impacts. For ∆EVE, the parallel up scenario caused 1 outlier in the Quantitative Impact Study (QIS) sample. In contrast, for ∆NII , the majority of outliers where identified under the parallel down scenario, reflecting the inherent asymmetry of the two regulatory metrics.

From a supervisory perspective, the focus is not on single metrics, but on the overall trend, which can demonstrate a gradual strengthening and enhanced maturity of IRRBB frameworks across the European Union (EU) banking sector. Institutions are expected to continue using SOT outcomes as an integral part of their IRRBB management, including risk identification, challenge of behavioural modelling assumptions, and strategic planning, rather than treating them as standalone compliance metrics.

Monitoring the 5-Year Cap on NMDs 

The second-phase of the IRRBB Heatmap Implementation reaffirms the supervisory role of the 5-year cap on the behavioural repricing maturity of NMDs as a key reference point for ensuring consistency and comparability of IRRBB outcomes across institutions.

The analysis performed by EBA indicates that, in most cases, institutions’ behavioural assumptions remain broadly aligned with this benchmark, including the current interest rate environment. Where institutions seek to apply repricing assumptions beyond five years, the supervisory expectation is that such approaches should be well-evidenced and embedded within a robust internal modelling framework.

In particular, institutions adopting longer repricing horizons are expected to demonstrate a clear and credible link to the specific characteristics of their business model, product or client segment, supported by robust behavioural analysis or sufficient historical data justifying the assumed longer-term stability of deposits. In addition, modelling choices are expected to be consistent with, and supported by, the institution’s hedging strategies, ensuring coherence across behavioural assumptions, risk measurement, and risk mitigation practices.

The report reiterates that the 5-year cap is not intended as a rigid modelling constraint, but rather as a supervisory benchmark against which internal assumptions are assessed. Transparency remains critical,  any deviations from the supervisory reference must be approved by the supervisor and disclosed under Pillar 3.

Commercial Margin Modelling 

The second-phase of the IRRBB Heatmap Implementation further clarifies supervisory expectations regarding commercial margin modelling under the SOT on NII, in line with Article 4(4) of Commission Delegated Regulation (EU) 2024/856.

The EBA observes that margins for term deposits, fixed-rate loans, and floating-rate loans are generally modelled as constant across interest rate scenarios, reflecting their contractual or market-referenced pricing characteristics. In contrast, margins on NMDs tend to exhibit greater variability, driven by behavioural components such as, delayed pass-through of interest rate changes and margin compression in low-rate environments.

To preserve comparability of SOT results, the EBA reiterates that the modelling flexibility justified for NMDs should not be extended to other balance sheet items as a general rule and can only be applied where products exhibit material behavioural characteristics comparable to those of NMDs and where such assumptions can be appropriately justified.

This reinforces the importance of robust behavioural modelling for NMDs and the need for consistency between margin assumptions, target repricing profiles, and hedging strategies within the broader IRRBB framework.

CSRBB Perimeter Identification

While CSRBB has always been within scope of regulatory considerations, it has often been assessed with limited depth in practice. The report highlights continued heterogeneity across institutions in defining the CSRBB perimeter, particularly between EVE and NII metrics.

CSRBB should be included in the Internal Capital Adequacy Assessment Process (ICAAP) where it is considered material, and institutions should generally aim to define a common CSRBB perimeter across EVE and NII, unless strong economic or risk-based considerations justify divergence.

Importantly, the report emphasises that instruments should not be excluded from the CSRBB perimeter ex ante solely on the basis of accounting classification, holding intention, or the absence of market-observed pricing. CSRBB may overlap with other risk categories, most notably for instruments subject to Credit Valuation Adjustment (CVA) or counterparty credit risk. While certain instruments are subject to CVA or counterparty credit risk, this does not automatically eliminate their exposure to credit spread risk. While there is no expectation of double-count risks, institutions are expected to clearly identify, assess and appropriately address any potential double-counting within their internal processes. Derivatives should therefore only be excluded from the CSRBB perimeter where they do not give rise to material credit spread risk. Assets measured at amortised cost, as well as own issuances other than equity, should be considered where they are sensitive to credit spread movements, even where direct market pricing is unavailable. In these cases, such sensitivity can be captured using robust model-based valuations or proxy spreads.

Effectiveness of Hedging Strategies and the EVE–NII Trade-Off

The report confirms that IRSs remain the primary hedging instrument used by EU institutions to mitigate IRRBB. Micro-hedging is commonly applied to debt securities and own issuances, while macro-hedging is more frequently used for behavioural portfolios, particularly NMDs.

Hedging strategies play a central role in mitigating IRRBB exposures, particularly for the change in EVE (ΔEVE metrics). The EBA places particular emphasis on the need for hedging strategies to appropriately consider both economic value and earnings perspectives. Institutions are cautioned against a one-sided focus on either metric, as such approaches may lead to misaligned risk management incentives.

Hedging strategies are therefore expected to be aligned with product characteristics and behavioural assumptions, consistent with the overall business strategy and risk objectives, supported by proper governance, and subject to regular monitoring and effectiveness assessment. This is particularly relevant in cases where hedging strategies are driven by assumptions embedded in NMD behavioural modelling and margin dynamics.

Summary and Outlook

The second phase of the IRRBB Heatmap Implementation report reflects a shift from identifying implementation gaps towards reinforcing consistency, proportionality ,and economic substance in IRRBB and CSRBB frameworks. While no new regulatory requirements are introduced, supervisory expectations are becoming more explicit, particularly in areas where practices have previously diverged. Institutions are expected to demonstrate coherent and well-governed frameworks, aiming to enhance convergence in risk management and supervisory expectations.