BANK 8.1.9 Guidance

1 A banking business firm should measure its vulnerability to loss in stressed market conditions, including market conditions in which significant assumptions are no longer met, and consider the results of that measurement when establishing and reviewing its IRRBB management policy. Stress scenarios for this exercise should include:
(a) historical scenarios such as the Asian crisis in the late 1990s;
(b) changes in the general level of interest rates (for example, changes in yields of 100 basis points or more in 1 year);
(c) changes in the relationships between significant market rates (basis risk), such as:
•   a rapid increase in term deposit rates, savings deposit rates and benchmark rates like LIBOR (but with no change in the prime rate); and
•   a drop in the prime rate (but with no change in term deposit rates, savings deposit rates and benchmark rates);
(d) changes in interest rates in separate time bands to different relative levels (that is, yield curve risk or changes in how interest rates vary over time);
(e) changes in the liquidity of financial markets;
(f) changes in the volatility of market rates; and
(g) changes in business assumptions and parameters such as the correlation between 2 currencies.
Amended by QFCRA RM/2017-2 (as from 1st April 2017).