Document ID: chunk:federal_register_of_legislation:F2024L01182:body:0:p8
Version: federal_register_of_legislation:F2024L01182
Segment Type: other
Provision Reference: 
Character Range: 19835–23096

regularly monitor its IRRBB profile in terms of both earnings at risk and economic value sensitivity;[2]
         2.           periodically review the assumptions made in the system, and the materiality of any IRRBB not captured by the system; and
         3.           perform periodical sensitivity testing of key assumptions, including behavioural assumptions.
 3.          An ADI's IRRBB measurement system must have comprehensive and detailed documentation, which must, at a minimum, include:
         1.           the specification of:
                 1.             data sources and capture methods;
                 2.          calculation method and assumptions, including behavioural and other assumptions about the timing of cash flows; and
                 3.        the rationale for the calculation method and all assumptions;
and
 1.           for an ADI that has IRRBB model approval:
         1.             enough detail to make the approach to determining the ADI's IRRBB capital charge transparent and capable of independent review, validation and independent reproduction of results given the raw input data;
         2.          details of any dependence structures used in the measurement system, including evidence supporting their use; and
         3.        where relevant, an explanation of how the ADI ensures that the required soundness standard in paragraph 38 of Attachment A to this Prudential Standard is achieved.
 1.          As part of its stress testing program under CPS 220, an ADI must consider the impact on the economic value of the banking book and net interest earnings of sudden changes in interest rates. This must at a minimum include:
         1.           scenarios that are tailored to the ADI's businesses and risks;
         2.           scenarios involving changes in the level, slope and shape of yield curves, as well as changes in customer behaviour;
         3.           multiple stress scenarios, with some based on historical events and others being hypothetical and forward-looking; and
         4.           clearly defined objectives, well documented assumptions and sound methodologies.
 2.          An ADI's policies and limits for IRRBB must reflect the results of stress testing exercises. Senior management must regularly communicate these results to the ADI's Board or Board committee.

Internal reporting of IRRBB exposures
 1.          In developing an appropriate reporting framework, an ADI must consider the nature of its IRRBB exposure and the strategy adopted for managing and measuring it.
 2.          Management reports must be produced and reviewed regularly and must include information on limit utilisation, the performance of risk management strategies, and the output of the ADI's risk measurement system, including its approved IRRBB model where applicable. The reviews must be conducted by management with authority to enforce, where necessary, mitigation of the ADI's exposure to IRRBB.
 3.          An ADI must have in place a process for ensuring that the ADI's Board, or Board committee, and senior management are able to respond appropriately to the information contained in IRRBB management reports. This process must include escalation procedures for key IRRBB issues