Interest rate risk in the banking book
Revisions to framework on Interest Rate Risk in the Banking Book
On 12 December 2023, APRA published a response to consultation on its proposed revisions to the Prudential Standard APS 117 Interest Rate Risk in the Banking book (IRRBB), released for consultation in November 2022.
The proposals outlined in the response paper principally reaffirm that all banks are required to manage their material risks, including IRRBB, commensurate with their nature, scale, and complexity. Where APRA deems banks are not managing their interest rate risk appropriately, APRA may require them to hold additional regulatory capital under APS 117.
APRA is now commencing a short consultation on some aspects of APS 117 which are also relevant to smaller banks.
In a letter to industry released today, APRA has also commenced consultation on reporting standards (ARS 117.0 and ARS 117.1) and the reporting practice guidance (APG 117.0) to accompany the updated prudential standard APS 117.
The materials related to the response and small consultation on APS 117, and the new consultation on APG 117 and related reporting standards and guidance can be found below:
Response to consultation on APS 117:
Submissions must be sent to ADIpolicy@apra.gov.au by 1 March 2024.
Draft prudential standard
Draft prudential practice guide
Consultation on ARS 117:
Submissions must be sent to DataConsultations@apra.gov.au by 1 March 2024.
Draft reporting standards
Draft reporting practice guide
On 28 November, APRA released a response to consultation on its proposed revisions to Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117).
APS 117 sets out the requirements that an ADI must meet in managing its interest rate risk in the banking book (IRRBB) risk. As part of this response paper, APRA is also consulting on new proposed revisions to APS 117, which are designed to reduce volatility in the IRRBB capital charge calculation as well as creating better incentives for ADIs in managing their IRRBB risk. As part of this consultation, APRA is also seeking feedback on the capital treatment of cash flow hedge reserves and associated tax effects.
APRA requests industry feedback on the new proposed revisions by 1 March 2023.
The response paper, clean and marked-up versions of the draft revised APS 117 and non-confidential submissions are available below:
Response paper on interest rate risk in the banking book requirements
The September 2019 consultation includes APRA’s response to the submissions received in relation to its initial proposals on the revised interest rate risk in the banking book (IRRBB) requirements, and commences a detailed consultation on other amendments to strengthen the IRRBB prudential framework. It also includes a draft Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book.
Written submissions are requested by 6 December 2019.
Note on submissions
It is APRA's policy to publish all submissions on the APRA website unless the respondent specifically tells APRA in writing that all or part of the submission is to remain confidential. An automatically generated confidentiality statement in an email does not satisfy this purpose. If you would like only part of your submission to be confidential, you should provide this information marked as 'confidential' in a separate attachment.
Submissions may be the subject of a request for access made under the Freedom of Information Act 1982 (FOIA). APRA will determine such requests, if any, in accordance with the provisions of the FOIA. Information in the submission about any APRA-regulated entity that is not in the public domain and that is identified as confidential will be protected by section 56 of the Australian Prudential Regulation Authority Act 1998 and will therefore be exempt from production under the FOIA.