Difference between revisions of "Reference Interest Rate"

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* swap rates, or, for reference rate tenors below 1 year,  
 
* swap rates, or, for reference rate tenors below 1 year,  
 
* the applicable interbank rate (e.g. EURIBOR, LIBOR, EONIA).  
 
* the applicable interbank rate (e.g. EURIBOR, LIBOR, EONIA).  
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For fixed-rate instruments, banks should use the same reference rate curve for all instruments denominated in a given currency and originated at the same time. Fixed rate instruments are assumed to be replaced with a fixed rate instrument of the same type, original maturity and currency and the reference rate of the new instrument will be calculated for a tenor equivalent to the original maturity of the replaced instrument using a yield curve projected for the time of origination, for the relevant currency, and in line with the scenario.
 
For fixed-rate instruments, banks should use the same reference rate curve for all instruments denominated in a given currency and originated at the same time. Fixed rate instruments are assumed to be replaced with a fixed rate instrument of the same type, original maturity and currency and the reference rate of the new instrument will be calculated for a tenor equivalent to the original maturity of the replaced instrument using a yield curve projected for the time of origination, for the relevant currency, and in line with the scenario.
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[[Category:Interest Rate Risk]]
 
[[Category:ALM]]
 
[[Category:ALM]]
 
[[Category:EBA 2018 EU-Wide Stress Test]]
 
[[Category:EBA 2018 EU-Wide Stress Test]]

Latest revision as of 10:58, 11 June 2019

Definition

Reference Interest Rate is defined as the general underlying risk-free rate relevant for a given instrument, e.g., as used by banks in the management of their interest rate risk in the banking book.

Use in Stress Testing

The rate does not include instrument-specific or entity-specific credit risk spreads or liquidity risk spreads[1]. Examples of acceptable rates are

  • swap rates, or, for reference rate tenors below 1 year,
  • the applicable interbank rate (e.g. EURIBOR, LIBOR, EONIA).


For fixed-rate instruments, banks should use the same reference rate curve for all instruments denominated in a given currency and originated at the same time. Fixed rate instruments are assumed to be replaced with a fixed rate instrument of the same type, original maturity and currency and the reference rate of the new instrument will be calculated for a tenor equivalent to the original maturity of the replaced instrument using a yield curve projected for the time of origination, for the relevant currency, and in line with the scenario.

For floating rate instruments, the reference rate should be aligned with the one relevant at the last re-repricing date and then be regularly re-priced in line with scenario developments (at the frequency defined by the contractual terms of the instrument).

References

  1. EBA: 2018 EU-Wide Stress Test - Draft Methodological Note

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