IRRBB – Support the transition of the IRRBB metrics computation tool and reconciliation exercise between both outcomes regarding EVE (Economics Value of Equity) and NII (Net Interest Income).

FOCUS ON: Case studies,

The Client, a huge international bank, request the support of Avantage Reply to further understand and quantify the differences arising between both of their IRRBB metrics calculators. The first, is a hand-made tool provided by the headquarter and the second is a well-known risk software solution used locally. Avantage Reply helps isolating and assessing each of the differences, and in case of materiality, set processes in order to compute overlays. Avantage Reply further helps to add and validate missing products. Validations cover parametrization of the tool, alinement of IRRBB inputs (margin and reference rate) and models (non-maturing products, prepayment, caps, floors,..).

CUSTOMER GOALS

The customer was looking to have a proper understanding on both outcomes in order to simplify and align the explanation of the quarterly variations arising from both calculators.

CHALLENGES

Reconciliation exercise on IRRBB figures can be challenging as source of differences can be numerous. Difference between EVE and NII can arise from a broad range of parameters; as margin, market rates, prepayments, compounding frequency, valuation method, etc...

SOLUTION

Both top-down and bottom-up approached have been conducted in order to isolate and quantify each differences separately.

Two main type of differences have been spotted:

Differences due to methodology (curves used, compounding frequency, treatment of floating rate position, static vs dynamic balance sheet, etc..)
Differences due to scope (some products have been waivered from one or another calculator)

RELATED CONTENTS

Case Study

IFRS 9 Control Framework

The customer is a retail belgian bank focusing on mortgage loans and consumer credit. Following the implementation of the IFRS 9 ECL calculator, the need arised to implement a control framework to ensure timely and quality calculation and bookings, and integration in the accounting and reporting platforms. Avantage Reply helped the client bridge the distance between different departments to identify the right responsibilities at the right moment in the process to increase its reliability.

Case Study

Internal Liquidity Adequacy Assessment Process (ILAAP)

Belgian retail bank under the direct supervision of the European Central Bank (ECB). The Bank’s products and services are distributed on-line, through the network of offices in Belgium, and through brokers. The Bank requested Avantage Reply to enhance their Internal Liquidity Adequacy Assessment Process (ILAAP), not only complying with regulatory requirements but also going beyond them to meet supervisory expectations and align to best practices of the market. Therefore, from Avantage Reply we assist in the performance of the official document that will need to be submitted to the supervisory authority. This assignment is not only writing a document, but also looking into the market and new regulations published by the supervisory authorities, analyzing how other banks are facing the new challenges concerning liquidity and sharing our knowledge and experience of the financial industry.