The Building Societies Association provides this brief response to the BCBS consultation.
(Read the full response here.)
The BSA’s members, the 44 UK building societies, all experience interest rate risk in the banking
book (IRRBB,) though none is a “Basel bank” – i.e. a large, internationally-active bank. Our
concern is that the finalised Basel proposals, when rolled out to domestic entities, will prove
over-complex and unsuitable for, in particular, our smaller members, and as a result will have
anti-competitive effect.
The BSA belongs to the European Association of Co-operative Banks, and our experts have
contributed to the EACB’s internal work leading up to its comprehensive response to the CP. We
support the EACB response, and highlight in this BSA response only a few key points of particular
relevance to our members.
The BSA agrees that interest rate risk is an important part of the overall set of financial risks our
members have to manage, and a review of the capital treatment may well be timely. Since our
members do not run trading books, this risk is entirely contained in the banking book – and
there is no arbitrage possibility as mentioned in the CP. The question is not whether IRRBB
should be adequately reflected in capital requirements, but only whether that should be done
more appropriately under Pillar 1 or (as at present ) under Pillar 2.
In principle, we have an open mind, and are fully aware of the reasons for aiming for a Pillar 1
treatment where possible. In some areas, a sufficiently simple Pillar 1 treatment can work well
for small institutions. Overall, however, the BSA concludes that retaining the Pillar 2 approach
works better, especially for our members, than having to apply these Basel Pillar 1 proposals. We
agree with the EACB’s key message on this.