For years, Interest Rate Risk in the Banking Book (IRRBB) has been the dominant constraint in balance sheet management. It is becoming increasingly well understood, tightly regulated and deeply embedded in ALM frameworks.
However, recent industry evidence points to a shift. In our ALM Survey 2026, banks were asked which regulatory metrics they expect to be their main constraints over the next 12 months. The results show:
- IRRBB: 51%
- Capital adequacy: 28%
- ICAAP: 24%
- CSRBB: 22%
- LCR: 18%
- NSFR: 17%
While IRRBB remains the dominant constraint at 51%, CSRBB at 22% is already a significant factor in balance sheet decision‑making. It ranks among the most frequently cited constraints, comparable to ICAAP at 24% and clearly ahead of liquidity metrics such as LCR and NSFR.
One reason for this shift is that CSRBB is wider in scope than what many ALM frameworks are designed to capture in practice. This creates a gap between regulatory expectations and how balance sheet risk is typically analysed.
This raises an important question.
How can CSRBB already be a binding constraint in banks’ decision‑making, when its regulatory treatment and implementation remain less structured than IRRBB?
IRRBB: A Structured and Maturing Framework
IRRBB has evolved over decades into a relatively mature discipline.
Regulatory expectations are clearly defined:
- Formal definitions and sub-components of risk
- Standardised metrics such as Economic Value of Equity and Net Interest Income
- Supervisory outlier tests and reporting templates
- Detailed guidance on modelling assumptions and behavioural aspects
This level of structure allows banks to:
- Integrate IRRBB into decision‑making frameworks
- Set limits and risk appetite clearly
- Align ALM, treasury and risk functions
Even though implementation remains complex, there is broad alignment on what good looks like.
CSRBB: Increasingly Important, but Less Defined
CSRBB, in contrast, is much newer as a regulatory focus.
It captures the risk arising from changes in market credit spreads, including both credit and liquidity premia, affecting banking book positions.
Supervisory attention has increased significantly, and banks are expected to:
- Identify and monitor CSRBB exposures
- Assess impacts on economic value and earnings
- Integrate CSRBB into risk management frameworks
However, despite this growing focus, CSRBB remains less prescriptive and less standardised than IRRBB.
The Core Issue: Less Guidance, More Interpretation
One of the defining challenges of CSRBB is that key elements are still open to interpretation.
Banks must decide:
- Which instruments fall into the CSRBB perimeter
- How to separate spread effects from interest rate effects
- What modelling approach to use
- How to set limits and integrate CSRBB into risk appetite
This stands in contrast to IRRBB, where frameworks and methodologies are significantly more standardised.
CSRBB Is Broader Than Typical ALM Scope
Another important factor is that CSRBB is inherently broader than traditional ALM and treasury frameworks.
In practice, CSRBB can cover:
- A wide range of spread-sensitive instruments
- Both credit and liquidity spread components
- Positions beyond the core scope of balance sheet modelling
Not all of these aspects are equally relevant for ALM or treasury systems. Some exposures are:
- Difficult to represent within standard cash flow-based ALM models
- More closely linked to valuation or market risk perspectives
- Outside the typical scope of balance sheet simulation
This creates a structural challenge.
Banks are expected to consider CSRBB as a whole, while their core ALM and treasury tools are typically designed around:
- Cash flow modelling
- Interest rate sensitivity
- Structured balance sheet projections
As a result, there can be a mismatch between:
- The regulatory definition of CSRBB, which is broad
- And the practical scope of ALM systems, which is more focused
This helps explain why CSRBB can already act as a constraint, even where modelling frameworks are still evolving.
Why CSRBB Still Becomes a Constraint
Despite this lack of clarity, CSRBB is already influencing decision‑making. The survey results reflect what many banks are experiencing in practice.
Overlap with IRRBB Creates Hidden Constraints
CSRBB is closely related to IRRBB, but not fully separable.
Both affect:
- Economic value
- Earnings
- Balance sheet sensitivity
In practice, credit spread movements and interest rate movements often interact. This means a position that appears acceptable under IRRBB may become constrained once spread risk is considered.
Concentration in Liquidity Portfolios
CSRBB exposure is often concentrated in liquidity buffers such as sovereign and financial institution bonds.
These portfolios are large, strategic, and sensitive to spread movements. As a result, even moderate spread changes can materially affect capital and earnings, making CSRBB economically relevant regardless of how formalised the framework is.
Supervisory Pressure Is Increasing
Even though detailed methodologies are less defined, supervisory expectations are rising.
Banks are expected to:
- Define CSRBB scope and methodology
- Justify exclusions
- Demonstrate credible measurement and governance
In practice, this creates pressure to act before full standardisation exists.
Lack of Standardisation Leads to Conservative Outcomes
Where IRRBB offers structured approaches, CSRBB requires judgment.
This often leads to:
- Conservative assumptions
- Broader inclusion of exposures
- Earlier internal constraints
As a result, CSRBB can become binding even without strict regulatory calibration.
A Clear Signal from the Survey
The ALM Survey 2026 highlights a key insight.
CSRBB is not a marginal topic. With 22% of banks identifying it as a main constraint, it is already shaping balance sheet decisions.
At the same time, the gap to IRRBB at 51% shows that IRRBB remains more mature and more dominant. The difference is not relevance, but structure and implementation maturity.
What This Means for ALM and Treasury
For ALM and treasury teams, this has practical implications.
- IRRBB and CSRBB need to be managed together, not separately
- Data, assumptions and models must be aligned across both risk types
- Governance frameworks need to accommodate evolving CSRBB methodologies
Most importantly, decision‑making frameworks must reflect both risks simultaneously, even where one is more clearly defined than the other.
Final Thoughts
IRRBB remains the most structured and mature risk framework in balance sheet management.
However, as evidenced by the ALM Survey 2026, CSRBB is already emerging as a significant constraint despite being less clearly defined.
This is not contradictory.
It reflects a broader reality in banking:
- Some risks become material before they are fully standardised
- Supervisory expectations often evolve ahead of consistent implementation
- Overlapping risks create practical constraints regardless of formal definitions
The challenge for banks is no longer just implementing IRRBB correctly, but managing IRRBB and CSRBB together, even where clarity is still evolving.