Article 23
Net interest income add-on for basis risk
1.
In addition to the allocation referred to in Article 7, institutions shall allocate the notional repricing cash flows of floating rate instruments, for each currency, by their repricing date, to the repricing time buckets referred to in point 4 of the Annex, where the sum of those floating rate instruments, other than those in the reference term ‘overnight’ referred to in paragraph 2, point (a), of this Article exceeds 5 % of the non-trading book positions that are accounted for as an asset in accordance with the applicable accounting framework.
For the purposes of the first subparagraph, institutions shall exclude embedded interest rate options and shall treat those options in accordance with paragraph 8.
2.
When allocating the notional repricing cash flows referred to in paragraph 1, institutions shall assign those cash flows to the following reference terms, to which the floating rate instrument refers:
(a)
overnight;
(b)
1 month;
(c)
3 months;
(d)
6 months;
(e)
12 months.
3.
In the absence of a corresponding reference term, institutions shall assign the notional repricing cash flows to either of the following categories:
(a)
‘policy rate’, where the floating rate instrument refers to a central bank policy rate;
(b)
‘other’, where the floating rate instrument refers to any other benchmark.
Institutions shall assign incoming notional repricing cash flows with a positive sign, and outgoing notional repricing cash flows with a negative sign.
4.
Institutions shall, for a given currency, on the basis of historic observations of movements in the interest rates of the instruments and for each reference term referred to in paragraph 2 and category referred to in paragraph 3, estimate tightening shocks and widening shocks in a way that is consistently applied over time.
5.
Institutions shall estimate the tightening and widening shocks referred to in paragraph 4 by comparing interest rates in the reference term ‘overnight’ referred to in paragraph 2, point (a), with the other reference terms referred to in paragraph 2, points (b) to (e), and categories referred to in paragraph 3.
6.
Institutions shall, for each currency, apply the tightening and widening shocks referred to in paragraph 4, multiplied by the remaining time referred to in Article 18, second subparagraph, to the notional repricing cash flows.
7.
Institutions shall aggregate, but separately for the tightening and widening shocks referred to in paragraph 4, the results from the calculations referred to in paragraph 6.
8.
Institutions shall calculate, both for the tightening and the widening shocks referred to in paragraph 4, the pay-outs from automatic interest rate options in floating rate instruments, and shall compare those pay-outs with the pay-outs calculated under the baseline scenario.
Institutions shall add the difference in the pay-outs that results from the comparison referred to in the first subparagraph to the aggregated result referred to in paragraph 7, but separately for the tightening and the widening shock. They shall assign a positive sign to incoming pay-outs and a negative sign to outgoing pay-outs. Institutions shall not discount pay-outs and shall not make any assumptions regarding changes in volatility.
9.
The net interest income add-on for basis risk shall be the lower result calculated in accordance with paragraphs 1 to 8 for tightening and the widening shocks.