The European Banking Authority (EBA) has urged EU banks to tighten oversight in a report setting out its medium- to long-term objectives for monitoring banks’ exposure to interest rate risk.
The report follows an earlier update on short- to medium-term objectives released in February 2025, the EBA said on Monday.
It stated the recommendations are intended to inform supervisory discussions and support banks’ practices, and that they should be applied in proportion to each institution’s size, complexity, risk profile and business model.
The publication does not introduce new regulatory requirements.
Banks’ results under a “supervisory outliers test” — a check used by supervisors to flag unusually high exposure to interest rate risk — indicate a gradual adjustment of risk management practices to the newer interest rate environment.
The number of outliers improved for two key measures: changes in economic value of equity and changes in net interest income.
Focus areas flagged for banks and supervisors
The authority said a “five-year cap” used as a common benchmark for modelling certain customer behaviour continued to have limited impact so far. It recommended that any departures from the supervisory default should be approved by supervisors and disclosed under “Pillar 3” — banks’ standard public risk disclosures.
Commercial margin modelling based on a constant spread remains widely used across most products, it said, but not for “non-maturing deposits” such as many current and savings accounts where customers can withdraw funds at short notice.
Guidance designed for those deposits should be extended to other products only where similar behavioural features are significant.
For credit spread risk in the banking book — the risk that changes in market credit spreads affect banks’ income or value — practices remain uneven, the authority said.
It warned banks should work towards a consistent scope for measuring the risk across both value and income metrics, and avoid excluding instruments in advance.
Interest rate swaps remain the main derivative banks use to reduce interest rate risk exposures, particularly where they breach the outliers test based on economic value of equity, the EBA said.
It added that hedge designation should match product characteristics, and that banks should evidence effectiveness through regular back-testing and documentation.
The latest versions of the EBA’s guidelines on interest rate risk in the banking book and credit spread risk in the banking book have applied across the EU since 31 December 2023.
