Interest Rate Risk Management, The Economic Value Of The Calculation Of The Reduction Of The Interest Rate Risk And Maturity Composition For The Preparation Of The Review Of The Legislative Provisions

Original Language Title: Procentu likmju riska pārvaldīšanas, ekonomiskās vērtības samazinājuma aprēķināšanas un procentu likmju riska termiņstruktūras pārskata sagatavošanas normatīvie noteikumi

Subscribe to a Global-Regulation Premium Membership Today!

Key Benefits:

Subscribe Now

Read the untranslated law here: https://www.vestnesis.lv/ta/id/172478

Financial and capital market Commission, the provisions of regulations No 34, Riga, 7 March 2008 (pr. Nr. 10, 3. p.)
Interest rate risk management, the economic value of the calculation of the reduction of the interest rate risk and maturity composition for the preparation of the review of the legislative provisions Issued in accordance with article 50 of the law of credit institutions, article 50.9 eighth and fifth paragraph of article 101.3, and financial instruments market law article 121 the ninth part, article sixth 123.3 and 123.4 eighth article i. General questions 1. "interest rate risk management, the economic value of the calculation of the reduction of the interest rate risk and maturity composition for the preparation of the review of the legislative provisions" (hereinafter-the rules) are binding on the Republic of Latvia registered banks and investment brokerage firms (hereinafter the authority).
2. the rules provide: 2.1 minimum requirements without the trade and Commerce portfolio in the balance sheet and off-balance-sheet items in the inherent interest rate risk management;
2.2. the procedures for the authorities to calculate the economic value of the reduction of sudden and unexpected changes in interest rates do not trade portfolio, and interest rate shock parameters;
2.3. interest rate risk the maturity composition of review and the economic value of the reduction calculation preparation and submission procedures.
3. the terms used in the rules: 3.1. interest rate risk: interest rate changes the possible adverse impact on the Authority's income and economic value;
3.2. interest rate risk the sources (causes): 3.2.1. price changes risk (repricing risk) – the ability to suffer losses, changes in interest rates and the differences the assets, liabilities and off-balance-sheet positions remaining timeless, 3.2.2. yield curve risk (yield curve risk) – the ability to suffer unexpected losses of yield curve changes slope (slope) and contour (shape), basis risk 3.2.3 (basis risk) – the ability to suffer losses when interest rates financial instruments with the same deadlines for review but different base rates (such as assets, liabilities-RIGIBOR Latvian Bank refinancing interest rate), check the risks 3.2.4 (optionality risk) – the ability to suffer losses when a financial instrument directly (options) or indirectly (loans with early repayment option, deposits on request URu.tml.) provides for bank client choice;
3.3. against interest rate changes to sensitive assets, liabilities and off-balance-sheet positions – assets, liabilities and off-balance-sheet positions, with a market value changes are directly dependent on changes in interest rates;
3.4. residual maturity-time of the last day of the reporting period to the end of the contract or the date on which in accordance with the provisions of the Treaty, must take the amounts and/or revised interest rates;
3.5. the economic value of future net cash flows present value determined by discounting the future cash flows with the current market interest rate;
3.6. General use of the term in the Commission Regulation No 60 02.05.2007. "calculation of minimum capital requirements rules" for the use of the term.
II. Interest rate risk management the Authority develop 4. interest rate risk management policies and procedures that meet the size of the authority, perform the operation (transaction) volume, diversity and complexity, and determined by: 4.1. interest rate risk the internal limits (for example, by currency, products), as well as the action of an internal limit in the event of failure;
4.2. interest rate risk measurement methodologies that cover the body essential interest rate risk sources and assess interest rate changes impact on the Authority's income and its economic value;
4.3. the stress test the frequency and modalities, including the possible development of the scenario assumptions (such as unexpected changes in the General level of interest rates, changes in mutual relations between the base rates, changes in the yield curve inclination and shape, changes in leadership in the liquidity of the financial markets URu.tml.);
4.4. the circumstances under which the authority may arise significant loss due to the risk of interest rates, assumptions and a possible plan of action.
5. the body constantly evaluates interest rate risk for both individual institutions and not the trading portfolio trading portfolio, and the two together.
6. the body constantly evaluates the risk of interest rates in each currency in which the institution has carried out a significant volume of transactions.
7. Interest rate risk is used to measure the size of one or different methods, t.sk. the difference analysis (gap analysis), duration (duration) method, simulation techniques (simulation approaches), referred to the Basel Committee on banking supervision developed in "interest risk management and supervisory principles" (see http://www.bis.org/publ/bcbs108.pdf).
8. the authority shall assess new products and services of potential interest rate inherent risk and approved by the risk management and control procedures before the related products or services.
9. the authority, which is subject to consolidated supervision, ensure effective interest rate risk management the group consolidation in General.
III. Interest rate risk the maturity composition overview 10. the Bank shall prepare "interest rate risk the maturity composition of review according to the form referred to in annex 1.
11. the Bank, of which the surveillance is carried out on the basis of the consolidated financial statements, "interest rate risk the maturity composition of the review shall be based on the individual financial statements of the bank.
12. the report against changes in interest rates sensitive assets, liabilities and off-balance-sheet positions according to the rest of the group.
13. Assets and liabilities that are not specific deadline or due date may differ from the contractual deadline, presented according to estimates, which are based on the bank's experience and is economically justified. Term deposits presented no longer than five years.
14. Assets, which created special provisions for unsecured debts, presented according to the residual value.
15. Derivatives are presented simultaneously as long as the off-balance-sheet positions and short off-balance-sheet items.
16. If the currency of the purchase and sales contract of presence (spot) is used to record the settlement date accounting (settlement date accounting), such a contract be included in the respective amounts receivable asset position and the amounts payable? the respective obligations of the position.
17. Against interest rate changes to sensitive assets and liabilities maturity composition assessed by calculating the interest risk and interest risk the net positions total positions: 17.1. interest risk the net position is determined as the difference between the interest rate changes to sensitive assets, which included long and off-balance-sheet items liabilities, which added to short off-balance-sheet positions in each maturity group;
17.2 percent total risk position is determined as the difference between the interest rate changes to sensitive assets and liabilities in ascending order of the period (such as the percentage of total risk position with a maturity of up to three months, calculated as the sum of the net positions of interest risk in intervals of up to one month and interest risk the net position between one to three months).
18. The impact on net interest income of the year, interest rates are going up by 1 percent parallel (or 100 basis points), is calculated as follows (see example 3.): 18.1. the maturity band interest risk the net position multiplied by time (expressed in fractions of a year), in which the respective net position (the difference) will be opened (assuming that interest rate changes take place in the middle of the period), and multiplied by 1 percent (or 100 basis points);
18.2. the total impact on annual interest income in determining the amount for each maturity band and one year calculated (profit or loss).
IV. Authorities of the economic value of the reduction of sudden and unexpected changes in interest rates do not trade portfolio 19. Investment firm is not required to prepare the economic value of the reduction of sudden and unexpected changes in interest rates are not calculated in the trading book, if the investment company trading portfolio shall not exceed 15 per cent of the balance sheet items and off-balance sheet transactions listed in total.
20. the institutions of the economic value of the reduction of sudden and unexpected changes in interest rates not trading book is assumed for the calculation of interest rates unexpectedly parallel changes (interest rate shock parameters) is 200 basis points.
21. the Commission may amend paragraph 20 in certain interest rate shock. Systems must allow the authority to calculate the economic value of the reduction of sudden and unexpected changes in interest rates do not trade portfolio after other shock conditions.
22. the authority of the economic value of the reduction of sudden and unexpected changes in interest rates not trading portfolio is calculated according to the form referred to in annex 2:22.1. non-trading book interest rate risk positions weighted values shall be calculated as follows:

22.1.1. lats and every other foreign currency, which commercial portfolio size (long or short position size) exceeds 5 percent of the institution's non-trading portfolio the aggregate total of short or long positions, using the table in annex 2 "Not trading book interest rate risk report".
22.1.2. in foreign currency which are not referred to in paragraph 22.1.1. currency, using the table in annex 2 "Not trading book interest rate risk report", which sets out risk non-trading portfolio transactions and positions the rest of the total amount of foreign currency which overestimated in dollars after the Bank of Latvia exchange rate concerned the reporting date;
22.2. the calculation of the economic value of the reduction.
23. the non-trading book interest rate risk positions weighted values are calculated, subject to the following requirements: 23.1. the trading book and the exposures of the group heading in the table of annex 2 "Not trading book interest rate risk report" in period 1, column groups, corresponding to the remaining term and taking into account the provisions of paragraph 13-16;
23.2. the term of the interest rate risk of the Group's net position, i.e. the difference between the non-trading portfolio of long and short positions, multiplied by 2. in the annex, in the table of "non trading book interest rate risk report" column 4 weighing factor (multiplier). Weighing factors (factor) is calculated for each maturity Group on the basis of the modified duration (modified duration) method, taking into account the interest rate shock parameters and the assumption that the assets or liabilities maturity is the interval of average size and average yields of financial instruments is 5 percent;
23.3. the total interest rate risk positions in the weighted value of the amount for each maturity Group calculated the interest rate risk positions weighted value.
24. Interest rate risk positions in each currency weighted value of annex 2 in the summary of the "economic calculation of impairment". The economic value of the reduction is calculated as the non trading book interest rate risk positions absolute values for the weighted totals against the institution's own funds.
25. Capital is determined in accordance with Commission Regulation No 60 02.05.2007. "calculation of minimum capital requirements rules" section III requirements.
V. reporting 26. the Bank shall prepare "interest rate risk the maturity composition of a report" on the State report on June 30 and December 31 in each currency in which the active or passive size exceeds 5 percent of the balance sheet total, as well as in general all currencies.
27. "interest rate risk structure of the period of review, drawn up in all the currencies in General, shall be submitted to the Commission until the accounting period following the 15th of the month.
28. "interest rate term structure of risk statements" that are prepared in separate currencies, prepares to the accounting period following the 15th of the month, and after five days at the request of the Commission.
29. the authority shall prepare "the economic value of the undercutting calculation" on the State report on June 30 and December 31, shall be submitted to the Commission and to the accounting period following the 15th of the month.
30. Rule 26 and reports referred to in paragraph 29 shall be drawn up in accordance with Commission Regulation No 156 16.07.2004. "electronically submit statistical reports preparation and dispatch rules".
31. If the Commission finds that the authorities submitted reports prepared in error, it is notified by e-mail the report to the applicant. If the Commission has not stated otherwise, the report must be submitted not later than on the working day following notification of the existence of the error from the Commission.
VI. final question 32. entry into force these rules shall lapse, Commission Regulation No 159 16.07.2004. "interest rate risk management interest rate risk and maturity composition for the preparation of the review of the rules".
Financial and capital market Commission, the President of the U.S. When the annex 1 financial and capital market Commission 07.03.2008. regulatory arrangements no 34 "interest rate risk management, the economic value of the calculation of the reduction of the interest rate risk and maturity composition for the preparation of the review of the regulatory arrangements" annex 2 financial and capital market Commission 07.03.2008. regulatory arrangements no 34 "interest rate risk management, the economic value of the calculation of the reduction of the interest rate risk and maturity composition for the preparation of the review of the regulatory arrangements" annex 3 financial and capital market Commission 07.03.2008. regulatory arrangements no 34 "interest rate risk management , the economic value of the calculation of the reduction of the interest rate risk and maturity composition for the preparation of the review of the legislative provisions ' impact on net interest income for the year calculated on the example of the maturity band interest risk the net positions (gap) thousand. lats interest rates increase,% year when interest risk positions will be open to the net impact on net interest income, the year thousand. (A) up to 1 month 1 2 3 4 lats.
500 1 0.958 (11.5/12) 4.79 1-3 months.
-2 000 1 0.833 (10/12)-16.66 3-6 months.
-2 000 1 0.625 (7.5/12)-12.50 6-12 months.
2 500 1 0.25 (3/12) total of 6.25-18.12