Bank of Russia proposes discussion of best practices in interest rate risk management
The Bank of Russia-published a consultation paper intended to enhance the quality of interest rate risk management. Improved interest rate risk management practices are essential to enhanced financial stability overall.
As inflation slows and interest rates and interest rate spreads decline in Russia, the problem of interest risk management is increasingly taking centre stage.
Interest rate growth episodes in the past show that the banking sector’s loss in the event of interest rate risk materialisation may equal that of loss from credit risk. Banks implementing best practices in the field of interest rate risk management for their banking portfolios would be able to cut such losses substantially.
The consultation paper in particular discusses current approaches to evaluating interest rate risk related to a banking portfolio, guidelines to developing a risk evaluation methodology and approaches to stress tests, as well as principles governing appropriate deal structuring and product pricing based on interest rate risk. These approaches are based on principles of the Basel Committee on Banking Supervision and other regulators’ approaches. Findings of Bank of Russia credit institution surveys were also considered.
The Bank of Russia welcomes any feedback on the consultation paper, including responses to the questions before or on 1 April 2020.