Modelling CSRBB under regulatory guidelines

Maxime Segal, Kristján Rúnar Kristjánsson and Björn Hrannar Björnsson

Finance Research Letters, 2025, vol. 82, issue C

Abstract: 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.

Keywords: CSRBB; IRRBB; EBA; Banking book; Credit spread; Risk management; Modelling (search for similar items in EconPapers)
JEL-codes: C51 E43 G28 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:82:y:2025:i:c:s1544612325007603

DOI: 10.1016/j.frl.2025.107501

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