6/10/2023 0 Comments Cashflow game boardSupervisory guidelines from the Office of the Comptroller of the Currency restricts Basel-like EVE testing to categories I and II organisations – the G-Sibs, plus Northern Trust.īehind closed doors, US supervisors can and will ask banks to up their IRRBB monitoring game if necessary. The US’s implementation of Basel’s IRRBB rules does leave much to the discretion of executives, only requiring banks to use and disclose either metric, rather than both. Another 11 referenced EVE-based controls without disclosing actual figures, with three not mentioning EVE at all. Outside the global systemically important banks (G-Sibs), only 11 banks with $50 billion or more in assets disclosed EVE test results as of end-March. Majority of lenders in Q1 did not report key metric that could have detected SVB’s risksīut in disclosures for most US banks, the EVE measure keeps playing second fiddle to the NII outlook. US regionals remain laggards on EVE measure It was a failure to manage what the Basel Committee on Banking Supervision calls interest rate risk in the banking book ( IRRBB), which banks should monitor by simulating the impact of rate shifts on two key indicators: net interest income ( NII) and economic value of equity ( EVE).ĮVE is – in the Basel Committee’s own words – “the net present value of notional repricing cashflows for the whole banking book, excluding the bank’s own equity capital.” EVE-based simulations aren’t a substitute for NII-based testing, rather they complement it, taking a longer-term view of the impact of rate shocks on cashflow generation. The bank buckled under the weight of the Fed’s interest rate hikes over the past 12 months, which devalued the assets on its balance sheet as market yields surged. Yet rather than wilful arrogance, it is a different banking vice that emerges from the Federal Reserve’s chronicle of SVB’s failings: insouciance. As with the most illustrious of history’s financial collapses, Silicon Valley Bank’s implosion has been depicted as a tale of hubris.
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