On 22 Jul 2024, the HKMA announced the BCBS’s recalibration of IRRBB interest rate shocks, featuring expanded calibration timeframes, local currency shock factors, increased percentile conservatism, and refined rounding. The HKMA will implement these changes by 1 January 2026 and update its Supervisory Policy Manual module IR-1 to reflect the BCBS adjustments.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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BCBS Recalibration of IRRBB Shocks
On 22 Jul 2024, the HKMA issued a communication regarding the Basel Committee on Banking Supervision’s (BCBS) recalibration of interest rate shocks for the interest rate risk in the banking book (IRRBB) standard, effective 16 Jul 2024. The BCBS proposals introduce targeted adjustments to the IRRBB methodology, including expanding the calibration time series from 2000–2015 to 2000–2023, replacing global shock factors with locally calculated currency-specific factors using rolling six-month absolute rate changes, increasing the shock factor percentile from 99th to 99.9th to maintain conservatism, and reducing rounding of shocks from 50 to 25 basis points. These changes aim to enhance calibration methodology and address challenges from prolonged low interest rates.
HKMA Implementation Plan
On 22 Jul 2024, the HKMA confirmed its intention to locally implement the recalibrated IRRBB shocks by 1 January 2026, aligning with the BCBS timetable. The HKMA will update its Supervisory Policy Manual module IR-1 in due course to incorporate the BCBS recalibration, ensuring regulatory consistency with the revised standard. The communication directs authorized institutions to note the proposed changes and contact designated HKMA officers for inquiries.
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