Interest rate risk arising from non-trading book activities (IRRBB)
Regulatory Definition
The current or prospective risk to both the earnings and the economic value of an institution arising from adverse movements in interest rates that affect interest rate sensitive instruments.
EBA GL/2022/14
What This Actually Means
The risk that changes in market interest rates hurt either your profits (NII) or the underlying value of your balance sheet (EVE). It's the core risk your treasury and ALM teams manage every day.
Where It Matters
Everywhere. This is the umbrella risk. If rates move and your assets and liabilities don't reprice at the same time or by the same amount, you have IRRBB exposure. Every bank has it — the question is how much and whether you understand it.
Scope and the banking/trading book boundary: defining what is in scope for IRRBB is not straightforward. The boundary between the banking book and the trading book needs to be set carefully and consistently — and the right boundary may differ depending on what the metric is being used for.
One common complexity is the funding of the trading book. Internal funding charges between the trading book and the banking book mean that interest rate risk can sit on either side of the boundary depending on how the FTP framework is structured. Getting this wrong means the banking book risk is not properly bifurcated and you may be measuring an incomplete picture.
A further complication is that there are two distinct views of the trading book: the regulatory trading book, used for Pillar 1 market risk capital calculations under CRR/FRTB, and the accounting trading book, which reflects IFRS 9 business model classifications. These two perimeters are not necessarily the same — an instrument can be in the regulatory trading book but not the accounting trading book, or vice versa. If your IRRBB scope is defined against one boundary but your risk systems are populated from the other, you risk omitting exposures or double-counting risk between the banking and trading books. The boundary needs to be explicitly defined, documented, and applied consistently across metrics and capital calculations.
The risk that rate moves hurt your earnings or economic value. The whole subject.