Document ID: chunk:federal_register_of_legislation:F2023L00349:body:0:p32
Version: federal_register_of_legislation:F2023L00349
Segment Type: other
Provision Reference: 
Character Range: 98889–101679

for each time band is multiplied by the relevant weighting factor (item 6 Weighting) to estimate the sensitivity of the positions in the different time bands (to an assumed change in interest rates[11]); and

    (c)                the resulting weighted positions are added together to determine the net (positive or negative) weighted position of the banking book for each maturity ladder (item 7, column 1 Interest rate sensitivity of banking book).

Repricing profile

ADIs are required to express their banking book items as a series of expected future notional principal cash flows using the repricing assumptions detailed in Prudential Practice Guide APG 117 Interest Rate Risk in the Banking Book (Advanced ADIs).

The repricing analysis should be completed on the basis of the expected repricing profile of assets and liabilities, rather than the contractual repricing (i.e. contractual loan repayment rates) or original maturity.  The expected repricing profile of assets and liabilities should take into account expected loan prepayment/amortisation rates and deposit portfolio run-off, rather than contractual repricing where these are expected to be materially different.  Where the terms and conditions of a banking book item provide for the full break cost of early withdrawals or repayments ('economic cost') to be charged to the customer, and it is the ADI's standard practice to do so, the ADI may use the contractual rather than expected repricing profile for that item provided this practice is applied consistently over time.

Time buckets

The time buckets on the form indicate the periods in which the interest rates applying to portfolios (e.g. investments, loans, deposits and borrowings) are expected to reprice (i.e. term to next interest rate repricing/change).  They do not indicate the residual term of the original maturity of the instrument itself, however the two may coincide (e.g. bank bills, term deposits, money market loans).

The amount recorded in each time bucket for each item is the amount of principal of that item that is expected to reprice during that time period rather than any fair value representation of that principal.  Similarly, the amounts in the total column for each item are the sum of the principal amounts in the time buckets in that row, not a fair value.

In the case of variable rate loans, for example, they do not have a fixed repricing term.  Accordingly these should be included in either the 0 to 1 month or >1 up to 3 months time buckets, depending on the time frame the ADI expects to take to adjust its variable rates after movements in the official or market rate.  A 20-year residential loan with a two year fixed interest rate would be included in the >1 up to 2 years time bucket (when the interest rate on