Article 5
General requirements for allocating notional repricing cash flows
1.
When using the standardised methodology for evaluating the risks arising from potential changes in interest rates that affect the economic value of equity of their non-trading book positions, institutions shall allocate the notional repricing cash flows of their non-trading book positions to the relevant repricing time buckets referred to in point 1 of the Annex, as follows:
(a)
for fixed rate instruments, in accordance with Article 6;
(b)
for floating rate instruments, in accordance with Article 7;
(c)
for non-maturity deposits, in accordance with Article 8;
(d)
for fixed rate loans subject to the risk of early repayment, in accordance with Article 9;
(e)
for fixed rate term deposits subject to the risk of early redemption, in accordance with Article 10;
(f)
for derivative instruments without optionality, in accordance with Article 11;
(g)
for instruments other than those referred to in points (a) to (f), in accordance with Article 12.
2.
Institutions shall treat commercial margins and other spread components in interest payments, in terms of their exclusion from or inclusion in the notional repricing cash flows, in accordance with their internal risk management and measurement approach for interest rate risk in the non-trading book.
Institutions that exclude commercial margins and other spread components from the notional repricing cash flows shall perform all of the following:
(a)
use a transparent methodology to identify the risk-free interest rate at origination of each instrument, and apply that methodology consistently across business units;
(b)
ensure that the exclusion of commercial margins and other spread components from the notional repricing cash flows is consistent with how the institution manages and hedges interest rate risk in the non-trading book;
(c)
notify the exclusion of commercial margins and other spread components to the competent authority.
3.
When allocating the notional repricing cash flows of their non-trading book positions as referred to in paragraph 1, institutions shall:
(a)
not take into account the impact of an embedded optionality of an automatic interest rate option on notional repricing cash flows;
(b)
take into account the impact of an embedded optionality of a behavioural interest rate option on notional repricing cash flows.