Credit Spread Risk
New risk category with high relevance for risk-bearing capacity
The regulatory requirement to consider credit spread risks in the banking book as a separate risk category in the ICAAP poses new professional and technical challenges. All interest-related instruments such as bonds, securitizations, CLNs and CDSs are affected. The need to map this risk affects institutions of all sizes with corresponding holdings in the banking book.
The distinction between the creditworthiness-induced portion and the risk premium-induced portion of the credit spread risk is particularly relevant. While creditworthiness-related changes are transferred to other risk types, the risk premium-induced portion must be addressed explicitly and separately. Changes in market value can have a significant impact on risk-bearing capacity through credit spreads. The introduction of this new risk category requires not only adapted risk measurement methods and IT solutions, but also a precise differentiation from existing risk types such as CVA, incremental risk charge or partial debt risks. Without a clear separation, there is a risk of double counting and gaps in risk management.
Transparent management of credit spread risk through cluster analysis & scenarios
- Portfolio segmentation by reference cluster
- Determination of market data credit spread
- Calculation & updating of credit spread scenarios
- Calculation of the credit spread risk ratio
Early identification of risk drivers through integrated spread scenarios
- Increased transparency regarding the impact of spread changes on the institution's risk-bearing capacity.
- Precise management of the risk premium-induced portion through differentiated portfolio segmentation and scenario calculations.
- Avoidance of double counting through clear differentiation from other risk types such as CVA or incremental risk charge.
- Improvement of regulatory compliance through complete and consistent mapping in the ICAAP.