Document ID: chunk:federal_register_of_legislation:F2024L01181:body:0:p3
Version: federal_register_of_legislation:F2024L01181
Segment Type: other
Provision Reference: 
Character Range: 6014–9051

margins on banking book items, where 'margin' means the difference between the interest rate on the items and the implied cost of funds for those items;
             2.           earnings at risk - the potential impact of interest rate changes on the net interest income and non-interest income (and expense) earned on the ADI's banking book;
             3.           economic value sensitivity - the potential impact of interest rate changes on the present value of all future cashflows arising from the ADI's banking book items, including the economic value of non-interest cashflows;
             4.           IRRBB - the risk of loss in earnings or in the economic value on banking book items as a consequence of movements in interest rates. For the purposes of this Prudential Standard, reference is made to the IRRBB components of repricing risk, yield curve risk, basis risk and optionality risk;
             5.           IRRBB capital requirement - the Regulatory Capital that an ADI is required to hold against its exposure to IRRBB in accordance with this Prudential Standard;
             6.            IRRBB management framework - the organisational structures, processes and systems used in identifying, assessing, measuring, monitoring, controlling and mitigating IRRBB;
             7.           IRRBB measurement system - the systems and data of the IRRBB management framework used to measure IRRBB;
             8.           optionality risk - the risk of loss in earnings or economic value due to the existence of stand-alone or embedded options[1], to the extent that the potential for those losses is not included in the measurement of repricing, yield curve or basis risks;[2]
             9.             repricing risk - the risk of loss in earnings or economic value caused by a change in the overall level of interest rates. This risk arises from mismatches in the repricing dates[3] of an ADI's banking book items; and
            10.             yield curve risk - the risk of loss in earnings or economic value caused by a change in the relative levels of interest rates for different tenors (that is, a change in the slope or shape of the yield curve). Yield curve risk arises from repricing mismatches between assets and liabilities[4].

Key principles

     1.              An ADI that has received model approval from APRA for IRRBB must:
             1.           have in place a robust IRRBB framework and a conceptually sound IRRBB measurement system; and
             2.           hold regulatory capital commensurate with its exposure to IRRBB.

Approval process

     1.              An ADI that has sought model approval from APRA to use an internal ratings-based approach to credit risk or an advanced measurement approach to operational risk must also apply for model approval to use an internal model approach to IRRBB for Regulatory Capital purposes.
     2.          Any model approval granted may specify how the internal model is to apply in relation to the ADI, including approvals under