Document ID: chunk:federal_register_of_legislation:F2024L01181:body:0:p12
Version: federal_register_of_legislation:F2024L01181
Segment Type: other
Provision Reference: 
Character Range: 31029–34062

source of the interest rates used. If a derived or modified yield curve is used, the basis of derivation or modification must be documented.

Data policies

     1.          An ADI must document its IRRBB data management policies and procedures. These policies and procedures must cover:
             1.           the collection of data;
             2.           processes for ensuring integrity, completeness, consistency and accuracy;
             3.           data storage;
             4.           application purposes; and
             5.           an outline of all data flows between systems, including whether any manual processes are involved in such flows.

Modelling repricing and yield curve risks

     1.          For the purpose of determining the IRRBB capital requirement for repricing and yield curve risks, an ADI's internal model must measure the maximum potential change in the economic value of the banking book (EVBB), as a consequence of changes in interest rates, for a 99 per cent confidence level and over a one-year holding period (consistent with the soundness standard detailed in paragraph 30 of this Prudential Standard).
     2.          The economic value of an individual banking book item is calculated as the net present value as at the beginning of the holding period, of expected future notional principal and interest cash flows. Notional cashflows should be discounted using the actual and simulated wholesale market interest rates as appropriate. EVBB is the sum of the economic value of all banking book items.
     3.          An ADI's internal model must estimate the 99th percentile of the distribution of EV0 minus EV1 where:
        1.           EV0 is EVBB minus an earnings offset (refer to paragraph 17 of this Attachment). In this case, EV0 and EVBB are both calculated using the discount rates prevailing at the beginning of the holding period; and
        2.           EV1 is EVBB minus an earnings offset (refer to paragraph 17 of this Attachment). In this case, EV1 and EVBB are both calculated using the discount rates simulated as prevailing at the end of the holding period.
    EV0 and EV1 are calculated on the same items using the same outstanding balances and repricing dates.[7]
     1.          The principal component of the notional cash flows must be derived using an ADI's repricing assumptions. The interest components relating to a principal payment must be calculated using historical wholesale rates (refer to paragraphs 15 and 16 of this Attachment).[8]
     2.          For banking book items with defined inception and principal payment dates, the historical wholesale rate applicable to a principal payment is the wholesale market rate applicable to a payment on the repricing date, taken from the yield curve applicable on the inception date of the instrument incorporating the principal payment. APRA will review the appropriateness of an ADI's choice of wholesale rates for the purposes of this paragraph and paragraph 12 of this Attachment and may,