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Banking (prudential standard) determination No. 5 of 2024

Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book

Banking Act 1959

I, Therese McCarthy Hockey, a delegate of APRA:

    (a) under subsection 11AF(3) of the Banking Act 1959 (the Act) REVOKE Banking (prudential standard) determination No. 4 of 2024 including Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs) made under that determination; and

    (b) under subsection 11AF(1) of the Act DETERMINE Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book in the form set out in the attached 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 October 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 comprises the document commencing on the following page.

Prudential Standard APS 117

Capital Adequacy: Interest Rate Risk in the Banking Book

Objective and key requirements of this Prudential Standard

This Prudential Standard sets out the requirements that an authorised deposit-taking institution must meet to ensure it prudently manages interest rate risk in the banking book.

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 its operations; and

                    be approved by APRA to use an internal model for determining its interest rate risk in the banking book capital charge.

Table of contents

Authority...........................................................3
Application..........................................................3
Interpretation........................................................4
Definitions..........................................................4
Adjustments and exclusions...........................................5
Previous exercise of discretion........................................5
Requirements for all ADIs.............................................6
Requirements for SFIs...............................................6
Internal model approval process.......................................6
Partial use of internal model...........................................7
Attachment A – Approved IRRBB models..............................14

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

Application
 1.              This Prudential Standard applies to all authorised deposit-taking institutions (ADIs), other than foreign ADIs and purchased payment facility providers. Additionally, APRA may determine that this Prudential Standard applies to a specified foreign ADI if APRA considers that the foreign ADI is not appropriately managing, measuring or monitoring its IRRBB or is carrying excessive interest rate risk, and require the foreign ADI to comply with some or all of the requirements in this Prudential Standard.
 2.              A reference to an ADI in this Prudential Standard, unless otherwise indicated, is a reference to:
         1.           an ADI on a Level 1 basis; and
         2.