Document ID: chunk:federal_register_of_legislation:F2023L00690:front:0:p7
Version: federal_register_of_legislation:F2023L00690
Segment Type: other
Provision Reference: 
Character Range: 16308–19068

If the nominal risk-free interest rate is between zero and one per cent per annum the downward stress is determined as the sum of 50 basis points and half of the nominal risk-free interest rate. The stress adjustments must be added to the nominal risk-free interest rates. The stress adjustments must also be added to any expected inflation rates included in the valuation of assets or liabilities. Nominal risk-free interest rates and expected inflation rates may be negative after applying the downwards stress adjustments.
    40.         The regulated institution must calculate the impact on the capital base of an upward movement and a downward movement in expected inflation or nominal interest rates. The impact of each calculation must not be less than zero. Both impact calculations must be used for the purposes of the aggregation formula in paragraph 78.

Currency stress
    41.         This stress measures the impact on the capital base of changes in foreign currency exchange rates.
    42.         The regulated institution must calculate the impact on the capital base of both an increase and a decrease of 25 per cent in the value of the Australian dollar against all foreign currencies.[5] In each of these scenarios, the Australian dollar must be assumed to move in the same direction against all foreign currencies. The impact of each calculation must not be less than zero. Both impact calculations must be used for the purposes of the aggregation formula in paragraph 78.
    43.         An increase in the capital base arising from a movement of the Australian dollar against one foreign currency must not be used as an offset to reductions in the capital base arising from the movement of the Australian dollar against other foreign currencies.

Equity stress
    44.         This stress measures the impact on the capital base of a fall in equity and other asset values. This stress applies to both listed and unlisted equity assets and to any other assets that are not considered in any of the other asset risk stresses. This stress also includes an increase to equity volatility. The volatility stress will affect an asset whose value is affected by movements in equity volatility (e.g. equity derivatives).
    45.         For listed equities, the fall in value is to be determined by increasing the dividend yield on the ASX 200 index at the reporting date by 2.5 per cent. The same proportionate fall in value must be applied to both Australian and overseas listed equities.
    46.         For unlisted equities and other assets, the fall in value is to be determined by increasing the dividend yield on the ASX 200 index at the reporting date by 3 per cent. The same proportionate fall in value must be applied to all unlisted