Report on IRRBB heatmap implementation (2nd phase – medium/long term action plan)

General Information

This report, entitled "Report on IRRBB heatmap implementation (2nd phase – medium/long term action plan)", was published by the European Banking Authority (EBA) in January 2026. It is part of the implementation of the regulatory framework related to interest rate risk in the banking book (IRRBB) and is based on data collected through quantitative impact studies (QIS) and supervisory reports (ITS) for the years 2022 to 2024. The scope covers European banking institutions, focusing on four main themes: the 5-year cap on repricing maturity of non-maturity deposits (NMD), the modeling of commercial margins, the definition of the credit spread risk scope in the banking book (CSRBB), and IRRBB hedging strategies.

Executive Summary

This report of the second phase of the EBA IRRBB "heatmap" implementation presents a medium and long-term action plan to support convergence and implementation of the IRRBB regulatory framework adopted in October 2022. The document analyzes four priority areas: (i) the 5-year cap on repricing maturity of non-maturity deposits (NMD), which remains a harmonizing benchmark and prudential safeguard, with most institutions aligned with this cap; (ii) the modeling of commercial margins, confirming that only NMD require variable modeling linked to their behavioral characteristics, while other products must maintain a constant margin in accordance with Article 4(4) of Delegated Regulation (EU) 2024/856; (iii) the definition of the CSRBB scope, which remains heterogeneous across institutions and Member States, with a strong recommendation to include all instruments sensitive to credit spread risk, including amortized cost instruments and own issuances excluding equity, without exclusion based on holding intention or accounting classification; (iv) hedging strategies, where interest rate swaps (IRS) are predominantly used, with demonstrated effectiveness in reducing regulatory threshold breaches, mainly on economic value (ΔEVE). The report emphasizes the importance of rigorous governance of hedging practices, documentation and regular back-testing, and recommends extending hedging to impacts on net interest income (ΔNII). Finally, the EBA announces continued monitoring of regulatory impacts, notably related to recalibrations of interest rate shock scenarios by the Basel Committee and the IASB dynamic risk management (DRM) project, to ensure consistency between accounting and prudential frameworks (p. 4-6).

Context and Objectives

The report follows the implementation of the IRRBB regulatory framework adopted in October 2022, including EBA guidelines, regulatory technical standards (RTS) on exception detection tests (SOT) and the standardized approach (SA). Since then, the EBA has strengthened supervision of IRRBB implementation in European banks, notably via ITS reporting and QIS performed on data from year-end 2022 to 2024. The objective is to assess the impact of regulatory requirements on prudent interest rate risk management, identify best practices and divergences, and promote convergence of prudential expectations. This report aims to deepen medium and long-term objectives, particularly on the 5-year cap for NMD, the modeling of commercial margins, the CSRBB scope definition, and hedging strategies. Analyses rely on quantitative and qualitative data from banks, supplemented by exchanges with competent authorities. The scope covers European banks, distinguishing internationally active institutions (Group 1) and others (Group 2). The report does not create new regulatory requirements but guides supervision and practices (p. 6-11).

Summary of Key Points by Theme

5-year cap on non-maturity deposits (NMD):

- The 5-year cap on repricing maturity of NMD, set by paragraph 111 of the EBA guidelines, aims to limit overly optimistic assumptions on liability stability and harmonize practices.

- QIS 2024 data show limited impact of the cap, with most banks already having repricing profiles within this limit, reflecting broad compliance and adaptation.

- Some banks apply an internal cap even without the rule, highlighting the cap’s harmonizing reference role.

- Institutions wishing to exceed this cap must demonstrate, in their internal measurement system (IMS), the relevance of this extension through robust behavioral analyses, consistency with hedging strategies, and dialogue with authorities.

- Transparency is encouraged via Pillar 3 disclosure of derogations and their impacts (p. 13-15).

Modeling of commercial margins:

- Article 4(4) of Delegated Regulation (EU) 2024/856 requires a constant margin independent of interest rate scenarios for the SOT on NII.

- Margins on term deposits, fixed or variable rate loans are mostly modeled as constant.

- NMD show variable margins linked to behavioral characteristics (transmission lags, compression in low rates).

- The EBA recommends limiting variable margin modeling to products with behaviors similar to NMD, to preserve comparability and regulatory consistency (p. 16-18).

Scope of credit spread risk (CSRBB):

- The definition and application of the CSRBB scope remain heterogeneous across institutions and Member States.

- A minority of institutions apply differentiated scopes between EVE and NII, often justified by product characteristics or internal practices.

- The scope is often limited to fair value instruments, particularly IFRS 13 levels 1 and 2, sometimes excluding level 3 and amortized cost instruments, which is discouraged.

- The EBA insists on including all spread-sensitive instruments, including amortized cost, using proxies or robust models if necessary.

- Exclusion based on holding intention or accounting classification is discouraged.

- Derivatives must be included if they bear material spread risk, regardless of CVA treatment.

- Own issuances (excluding equity) sensitive to spreads must be included, excluding the idiosyncratic component related to own credit quality (p. 18-22).

Hedging strategies:

- Interest rate swaps (IRS) are the main IRRBB hedging instrument, with weighted coverage above 95% on most items.

- Micro hedging is preferred for debt securities and own issuances, while macro hedging is more frequent for behavioral portfolios such as NMD.

- Hedging significantly reduces regulatory threshold breaches: for ΔEVE, from 36% to 0.66% of banks; for ΔNII, from 20% to 7%.

- Banks focus more on managing economic value than net interest income volatility.

- The EBA recommends extending hedging to ΔNII, adapting strategies to instrument characteristics, improving alignment between economic and accounting hedging, and integrating hedging into the overall risk strategy with documentation and regular review (p. 23-25).

Main Results and Lessons Learned

Findings:

- The 5-year cap on NMD is widely respected and has a harmonizing effect without significant material impact on IRRBB measures in the current high rate environment (p. 14).

- Commercial margin modeling is mostly constant except for NMD, which require variable modeling linked to their behavior (p. 16-17).

- The CSRBB scope is applied heterogeneously, with a tendency to exclude some amortized cost or IFRS level 3 instruments, which is discouraged (p. 19-21).

- Hedging strategies, mainly via IRS, strongly reduce regulatory threshold breaches, especially for ΔEVE (p. 24).

Assumptions:

- Institutions exceeding the 5-year cap must justify this choice with robust behavioral analyses and consistency with hedging strategy (p. 15).

- Extending variable margins to products other than NMD could harm comparability and is contrary to regulation (p. 17).

- Excluding instruments from the CSRBB scope based on holding intention or accounting classification is not justified (p. 21).

Interpretations:

- Convergence of IRRBB profiles and reduction of extremes in SOT results suggest better resilience and harmonization of practices (p. 10).

- The focus of hedging strategies on economic value reflects a prudential priority but could be expanded to better manage income volatility (p. 24-25).

Uncertainties:

- The potential impact of Basel Committee interest rate shock scenario recalibrations on IRRBB measures remains to be analyzed (p. 6).

- Future integration of accounting evolutions related to the IASB DRM project could modify prudential practices and requires monitoring (p. 6).

Conclusions and Recommendations

The EBA confirms maintaining the 5-year cap on repricing maturity of NMD as a prudential reference, while allowing derogations justified by robust analyses and dialogue with authorities. It recommends transparency in Pillar 3 disclosures for any derogation. Regarding commercial margin modeling, the EBA advises limiting variable modeling to products with behavioral characteristics similar to NMD, to preserve comparability and regulatory rigor. On the CSRBB scope, the EBA calls for enhanced harmonization, including all spread-sensitive instruments without exclusion based on accounting classification or holding intention, and integrating derivatives and own issuances excluding equity according to their sensitivity. For hedging strategies, the EBA highlights their central role in IRRBB management, recommends extending their use to net interest income volatility management, adapting approaches to instrument characteristics, improving alignment between economic and accounting hedging, and ensuring rigorous governance with documentation and regular review. Finally, the EBA will continue monitoring regulatory impacts, notably related to shock scenario recalibrations and the IASB DRM project, in cooperation with institutions and competent authorities (p. 15, 18, 22, 25).