The Australian Prudential Regulation Authority (APRA) has released updated requirements for banks to better manage the impact of interest rate changes on their financial position.
In a response to its November 2022 consultation released today, APRA has updated its revisions to Prudential Standard APS 117 Interest Rate Risk in the Banking book (IRRBB) aimed at:
- reducing some of the volatility in the IRRBB capital charge;
- creating better incentives for banks to manage their IRRBB risk, including raising standards of governance and measurement of risk; and
- simplifying and removing complexities in the IRRBB framework.
Under APS 117, banks that are classed as significant financial institutions are required to have an appropriate risk management and governance framework to manage the impact of changing interest rates on their businesses. Larger and more complex banks are also required to hold capital against this risk.
For larger banks, APRA’s updated proposed revisions to APS 117 address previously raised concerns on the treatment of embedded gains and losses and the observation period for the capital charge methodology. These revisions are expected to reduce volatility in the IRRBB capital charge…
