Modelling CSRBB under regulatory guidelines

Útdráttur

The European Banking Authority (EBA) provides limited standardization for Credit Spread Risk in the Banking Book (CSRBB), delegating its assessment to individual financial institutions. This has led to significant variation in how CSRBB guidelines are interpreted and applied across the banking sector. This study investigates how to model plausible but unlikely credit spread shocks using Principal Component Analysis (PCA), hypothesizing that systemic risk dominates fluctuations across government and corporate bonds. The model aligns with EBA requirements and provides insights to strengthen risk management frameworks.

Lýsing

Publisher Copyright: © 2025

Efnisorð

Banking book, Credit spread, CSRBB, EBA, IRRBB, Modelling, Risk management, Finance

Citation

Segal, M, Kristjánsson, K R & Björnsson, B H 2025, 'Modelling CSRBB under regulatory guidelines', Finance Research Letters, vol. 82, 107501. https://doi.org/10.1016/j.frl.2025.107501