Document ID: chunk:federal_register_of_legislation:F2024L01182:body:0:p17
Version: federal_register_of_legislation:F2024L01182
Segment Type: other
Provision Reference: 
Character Range: 44321–47325

whether stand-alone or embedded in other instruments, the ADI must use a method that APRA has explicitly approved to measure IRRBB on that item.
 6.          An ADI's repricing assumptions form part of its approved IRRBB model and must be clearly documented, conceptually sound, reasonable and, except where compelling reasons are provided to do otherwise, consistent with historical experience.
 7.          APRA may review the appropriateness of an ADI's repricing assumptions and may require the ADI to use different assumptions for the purpose of determining its IRRBB capital charge.

Shorter and longer assumptions
 1.          The shorter and longer assumptions are used to take account of the most common sources of optionality risk where customer payments differ from what was assumed in a behavioural repricing profile. These assumptions must be the same as the central assumptions for all items except fixed-rate assets, rate locks and core deposits, for which the differences are:
         1.           for notional principal cash flows:
                 1.             each prepayment rate that is used in determining the repricing profile for fixed-rate, non-market-related assets must be determined as:
Where  is the corresponding prepayment rate used in the central assumptions,  is the highest possible prepayment rate, and the factor  is specified in Table 1;
 1.          each drawdown rate that is used in determining the repricing profile for a rate lock must be determined as:
where  is the corresponding drawdown rate used in the central assumptions and the factor  is specified in Table 1;
 1.        for a core deposit, the notional principal cash flow at any date that is more than one business day after the calculation date is:
where  is the corresponding notional principal cash flow for that date in the central assumptions,  is specified in Table 1 and the balance of the principal is assumed to reprice on the next business day after the calculation date;
and
 1.           all notional interest cash flows must be recalculated to be consistent with the revised notional principal cash flows, in accordance with paragraph 27 of this Attachment.

Table 1: Behavioural optionality factors
Repricing Assumptions :                   Shorter  Longer
Prepayment modification factor            1.2      0.8
Drawdown modification factor              0.8      1.2
Withdrawal factor                         0        0.1

Additional optionality risk
 1.          An ADI must assess, at inception and at least annually, any risk to which it is exposed to from sources of optionality risk not captured by paragraphs 18 or 34 of this Attachment and determine whether the potential loss from all such sources is material. Where the loss is assessed as material, the ADI must extend its approved IRRBB model to determine a capital charge for those losses, which is the optionality capital charge. That capital charge must meet a soundness standard whereby it is no less than the 97.5 per