Document ID: chunk:federal_register_of_legislation:F2024L01181:body:0:p11
Version: federal_register_of_legislation:F2024L01181
Segment Type: other
Provision Reference: 
Character Range: 28271–31290

an IRRBB approval, the ADI must demonstrate to APRA that the system has undergone a sufficiently long period of initial internal monitoring prior to its use for the calculation of the capital requirement. The length of this monitoring period will depend upon the performance of the ADI's IRRBB management framework and its track record in managing and measuring IRRBB.

Data

     1.              An ADI must have transparent and verifiable processes for collecting relevant data inputs (e.g. exposure information, details about customer behaviour and product and wholesale rate histories) on an ongoing basis. These processes must be consistent, timely and comprehensive across the ADI.
     2.              An ADI's IRRBB exposure data must be comprehensive in capturing all material exposures from all appropriate business activities, banking book items and geographic locations. The ADI must be able to justify that any excluded exposures, both individually and in aggregate, would not have a material impact on the overall estimate of its IRRBB capital requirement.

Interest rate data

     1.              For the purpose of determining the IRRBB capital requirement, the interest rates used and modelled by an ADI must include at least one yield curve in each material currency. Immaterial currencies may be combined into one or more groups and modelled using a single yield curve for each group based on a currency, or composite of currencies, broadly reflective of the interest rate characteristics of the group.
     2.              An ADI's IRRBB measurement approach must model each yield curve using a model that appropriately captures variation in the volatility of interest rates along the curve.
     3.              Regardless of the type of model used, interest rate assumptions will depend to a significant degree on the ADI's observation history of interest rates. The observation period must be at least six years, except where the ADI provides evidence that the use of a shorter observation period would provide a more appropriate distribution of future interest rates. Interest rate assumptions are not required to directly or exactly reflect the characteristics of the observation period but, where they do not, the basis for the difference must be explained and justified.
     4.              An ADI must update its interest rate data sets regularly and reassess its data sets whenever the interest rate environment is subject to major change.
     5.              Correlations between interest rates on the same and different yield curves must be recognised and included in an ADI's internal model. Correlation assumptions must be sound, justifiable and implemented with integrity.
     6.              An ADI must document the 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