Liquidity and IRRBB regulation

Treasury, the stock of HQLA

Wendlestone Bank plc (invented) is a UK retail bank with £11,400m of assets at 31 December 2025. Treasury lists what it holds, at market value in £ millions:

Three weeks ago Treasury borrowed £300m of cash in a repo with a UK bank, against £360m of the BBB+ utility bonds. It has 25 days left; the cash sits in the reserves above. Every other holding meets the operational requirements, and the bank has no other secured deals or collateral swaps within 30 days. Use the Basel haircuts: 15% on Level 2A, 50% on Level 2B corporate bonds and shares.

Lessons: L4.5.01: The LCR: high-quality liquid assets

Treasury, the LCR

Wendlestone's balances that fall due, can be withdrawn or can be drawn within 30 days, in £ millions. Retail term deposits all have more than a year to run, and no other funding falls due.

Basel rates (LCR40): stable retail 5%, less stable retail 10%, operational deposits 25%, non-financial companies 40%, financial institutions 100%; secured funding 0% on Level 1, 15% on Level 2A, 25% on RMBS, 50% on other Level 2B, 100% on anything else; committed credit facilities to companies 10%, liquidity facilities 30%; the downgrade window and the look-back 100%. Inflows: retail and non-financial borrowers 50%, financial institutions 100%, capped at 75% of outflows. The stock of HQLA is the answer to Problem 1(c).

Lessons: L4.5.02: The LCR: outflows and inflows · L4.5.01: The LCR: high-quality liquid assets

Treasury, the NSFR

Wendlestone's balance sheet for the NSFR, in £ millions, with residual maturities. Liabilities and capital:

Assets and commitments:

Factors to choose from (NSF30): ASF 100%, 95%, 90%, 50% or 0%; RSF 0%, 5%, 15%, 50%, 65%, 85% or 100%, and 5% on undrawn committed facilities. Assets pledged for less than six months take the factor of the same asset unencumbered (NSF30.20).

Lessons: L4.5.03: The NSFR

Liquidity risk, monitoring metrics

Wendlestone's total balance sheet is £11,400m; its total liabilities are £10,500m (equity is the £900m of Tier 1). Its five largest wholesale funding providers, in £ millions:

Liabilities in other currencies, in pounds: USD 560 (corporate call deposits 400, F3's deposits 60, a senior bond 100 (four years)); EUR 480 (operational deposits 300, a senior bond 180 (three years)). Within 30 days in dollars: the 400 of call deposits are from non-financial companies and F3's 60 can leave; 40 of dollar placements with banks mature. The only dollar HQLA are the 150 of US Treasuries. Use the rates of Problem 2.

Lessons: L4.5.04: Monitoring metrics and the ILAAP · L4.5.02: The LCR: outflows and inflows

ALM, interest rate risk in the banking book

Two positions in Wendlestone's banking book: a 3-year fixed-rate bond it holds, £100m paying a 4% coupon once a year; and a 2-year fixed-rate retail term deposit, £80m paying 3.5% once a year, with no early withdrawal. Both have whole years to run. Today's sterling zero curve is flat at 3.75%, continuously compounded. The Basel sterling sizes from 1 January 2026 are 275bp parallel, 425bp short and 250bp long; the short rates up shock at tenor $t$ years is $425\,e^{-t/4}$ bp.

Separately, a supervisor is calibrating sizes for a new currency (illustrative). The 99.9th percentiles of the averaged six-month rate changes are 418bp for parallel, 356bp for short and 71bp for long.

Lessons: L4.5.05: The IRRBB standard

Risk, supervisory outlier tests

Wendlestone's model gives these changes in economic value for its whole banking book at 31 December 2025 (illustrative), in £ millions, a fall negative. Many of its mortgages are fixed for two years and funded by deposits that reprice at once. No shocked rate falls below zero, so no floor or lower bound binds.

One-year ΔNII on a constant balance sheet, at the EU's ±250bp sterling parallel size: 40.0 up and −47.7 down. Tier 1 is £900m (CET1 £800m, AT1 £100m). For the EU tests, treat the book as if it were supervised in the EU.

Lessons: L4.5.06: Supervisory outlier tests · L4.5.05: The IRRBB standard

ALM, the standardised IRRBB framework

The supervisor asks Wendlestone for its ΔEVE under the Basel standardised framework, in sterling, on the flat 3.75% curve of Problem 5 and the Basel sizes (parallel up 275bp).

• Instant-access savings, £2,500m, are retail non-transactional deposits. The bank's own model calls 80% of them core, with an average maturity of 5 years.
• Fixed-rate mortgages, £4,000m, prepay at a base rate of 10% a year.
• Three cash flows from the book: fixed-rate business loan repayment, 600 in 0.8 years; gilt redemption with its last coupon, 400 in 3.3 years; fixed-rate senior bond the bank issued, repaid with its last coupon, −300 in 4.6 years (£m, a payment by the bank negative).
• Automatic options, valued today and after parallel up with implied volatility 25% higher: caps at 6% sold to £2,000m of tracker borrowers, 2.4 → 9.6; an interest rate floor the bank bought as a hedge, 3.0 → 1.1.

Lessons: L4.5.07: The standardised IRRBB framework and CSRBB