Interest rate sensitive instruments
Regulatory Definition
Assets, liabilities and off-balance-sheet items in the non-trading book, excluding assets deducted from CET1 capital, e.g. real estate or intangible assets or equity exposures in the non-trading book.
EBA GL/2022/14
What This Actually Means
Everything on your banking book that is affected by interest rate changes. Loans, bonds, deposits, swaps, committed facilities — anything where the value or cashflows change when rates move. Excludes things like your office building or goodwill.
Where It Matters
The definition matters because it determines what's in scope for IRRBB measurement. Common debates include whether to include equity (for hedging vs EVE), how to treat non-performing loans, and whether pension obligations are in scope. Getting the perimeter wrong means your risk numbers are wrong.
Trading book vs non-trading book perimeter: a critical but often overlooked ambiguity is whether you are using the regulatory definition of the trading book or the accounting definition. These are not the same. The regulatory trading book (under CRR/FRTB) is defined by trading intent and the ability to hedge or manage positions on a net basis — instruments held for short-term resale, market-making, or arbitrage. The accounting definition (IFRS 9 / FVTPL) is driven by business model and contractual cashflow characteristics. An instrument can sit in the regulatory non-trading book but be measured at fair value through P&L under accounting rules, or vice versa. If your IRRBB perimeter is defined by reference to one framework but your risk systems are populated from the other, you will have scope gaps or double-counts that are invisible unless you explicitly reconcile the two.
Pensions: defined benefit pension schemes contain interest rate risk, but in practice this is almost always managed by a separate pensions or actuarial team rather than the ALM desk. The reason is that DB pension risk is a composite exposure — it contains interest rate risk, inflation risk, credit spread risk on the bond portfolio, and mortality risk. Isolating and extracting just the interest rate component into IRRBB creates more confusion than it resolves. The more common approach is to treat pension risk as a standalone risk type with its own framework, and ensure there is a clear governance boundary between the pensions team and ALM. A further practical reason: even where pension interest rate exposure is relatively small compared to the banking book, the liability is more volatile and harder to predict than a standard loan or deposit. Actuarial assumptions — mortality curves, inflation expectations, member behaviour — change in ways that are difficult to model with the same precision as contractual cashflows. Folding that uncertainty into an IRRBB framework built around repricing schedules and rate sensitivities introduces noise that obscures rather than illuminates the core risk.
The price of money over time.