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Banking (prudential standard) determination No. 4 of 2024

Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs)

Banking Act 1959

I, Therese McCarthy Hockey, a delegate of APRA, under subsection 11AF(1) of the Banking Act 1959 (the Act) DETERMINE Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs) in the form set out in the schedule, which applies to ADIs and authorised NOHCs to the extent provided in paragraphs 2 to 4 of the prudential standard.

This instrument commences on 1 April 2025.

Dated:  17 September 2024

Therese McCarthy Hockey
APRA Member

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.

ADI and authorised NOHC have their respective meanings given in the Act.

Schedule

Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs) comprises the document commencing on the following page.

Prudential Standard APS 117

Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs)

Objective and key requirements of this Prudential Standard

This Prudential Standard sets out the requirements that an authorised deposit-taking institution with approval to use an internal model for interest rate risk in the banking book must meet for regulatory capital purposes, both at the time of initial implementation and on an ongoing basis.

The key requirements of this Prudential Standard are that an authorised deposit-taking institution must have:

                    a framework to manage, measure and monitor interest rate risk in the banking book commensurate with the nature, scale and complexity of the institution's operations; and

                    approval from APRA to use an internal model for determining the institution's capital requirement for interest rate risk in the banking book.

Table of contents

Authority...........................................................3
Application.........................................................3
Interpretation.......................................................3
Scope..............................................................3
Definitions..........................................................4
Key principles.......................................................5
Approval process....................................................5
Adoption of the internal model approach................................6
Interest rate risk in the banking book management framework.............7
Interest rate risk in the banking book measurement system................7

Attachments

Attachment A - Governance and the interest rate risk in the banking book management framework......10

Attachment B  - Quantitative standards for measuring the capital requirement14

Authority

     1.              This Prudential Standard is made under section 11AF of the Banking Act 1959 (the Banking Act).

Application

     1.              This Prudential Standard applies to authorised deposit-taking institutions (ADIs) that are seeking or have been given approval to use an internal model approach for interest rate risk in the banking book (IRRBB) for the purpose of determining Regulatory Capital.
     2.              A reference to an ADI in this Prudential Standard shall be taken as a reference to:
             1.           an ADI on a Level 1 basis; and
             2.           a group of which an ADI is a member on a Level 2 basis.
     3.              If an ADI