Supervisory authorities should obtain from banks sufficient and timely information with which to evaluate their level of interest rate risk. This information should take appropriate account of the range of maturities and currencies in each bank's portfolio, including off-balance-sheet items, as well as other relevant factors, such as the distinction between trading and non-trading activities.

1. Supervisory authorities should, on a regular basis, obtain sufficient information to assess individual banks' interest rate risk exposures. In order to minimise reporting burden, this information could be obtained through standardised reports that are submitted by banks, through on-site examinations, or by other means, such as internal management reports. The precise information obtained could differ among supervisors, but should enable the supervisor to assess the level and direction of a bank's interest rate exposure. Such information may be generated from the bank's internal measures or from more standardised reports. As a minimum, supervisors should have enough information to identify and monitor banks that have significant repricing mismatches. Information contained in internal management reports, such as maturity/repricing gaps, earnings and economic value simulation estimates, and the results of stress tests can be particularly useful in this regard.

2. A supervisory reporting framework that collects information on a bank's positions by remaining maturity or time to next repricing is one method that supervisors may use for this purpose. Under such an approach, a bank would categorise its interest-sensitive assets, liabilities and OBS positions into a series of repricing time bands or maturity categories. In addition, the information should identify the balances by specific types of instruments that differ significantly in their cash flow characteristics.

3. Supervisors may want to collect additional information on those positions where the behavioural maturity is different from the contractual maturity. Reviewing the results of a bank's internal model, perhaps under a variety of different assumptions, scenarios and stress tests, can also be highly informative.

4. Banks operating in different currencies can expose themselves to interest rate risk in each of these currencies. Supervisory authorities, therefore, may want banks to analyse their exposures in different currencies separately, at least when exposures in different currencies are material.

5. Another question is the extent to which interest rate risk should be viewed on a whole bank basis or whether the trading book, which is marked to market, and the banking book, which is often not, should be treated separately. As a general rule, it is desirable for any measurement system to incorporate interest rate risk exposures arising from the full scope of a bank's activities, including both trading and non-trading sources. This does not preclude different measurement systems and risk management approaches being used for different activities; however, management should have an integrated view of interest rate risk across products and business lines. Supervisors may want to obtain more specific information on how trading and non-trading activities are measured and incorporated into a single measurement system. They should also ensure that interest rate risk in both trading and non-trading activities is properly managed and controlled.

6. A meaningful analysis of interest rate risk is only possible if the supervisor receives the relevant information regularly and on a timely basis. Since the risk profile in the traditional banking business changes less rapidly than in the trading business, quarterly or semi-annual reporting of the former may be sufficient for many banks. Some of the factors that supervisors may wish to consider when designing a specific reporting framework are described in greater detail in Annex B, which forms an integral part of this text.

September 1997