APRA Launches Second Consultation on IRRBB Framework in Australia
APRA has commenced the second consultation on the framework for interest rate risk in the banking book (IRRBB) for authorized deposit-taking institutions in Australia. This consultation includes the draft Prudential Standard APS 117 and APRA response to the submissions received in relation to the initial proposals on the revised IRRBB requirements. The comment period for this consultation ends on December 06, 2019. Additionally, the proposed changes of APRA to the reporting and disclosure requirements and a revised prudential practice guide for IRRBB are expected to be consulted on in 2020. APRA is proposing that the revised APS 117 will commence on January 01, 2022, in line with the international agreed Basel committee implementation timeline.
The draft APS 117 sets out the requirements that an authorized deposit-taking institution must meet in relation to interest rate risk in the banking book. The key requirements of this proposed prudential standard are that an institution must have a framework to manage, measure, and monitor interest rate risk in the banking book commensurate with the nature, scale, and complexity of its operations. Additionally, an authorized deposit-taking institutions must apply for approval from APRA to use an internal model for determining the capital charge for IRRBB, if it has sought or received approval from APRA to use an internal ratings-based approach (IRB) to credit risk. This consultation on the IRRBB framework is part of the APRA revisions to the capital framework for authorized deposit-taking institutions to implement "unquestionably strong" capital ratios and the Basel III reforms.
In response to the first consultation on the IRRBB framework that was launched in February 2018, APRA had received seven submissions from authorized deposit-taking institutions and industry associations. Respondents broadly supported the APRA proposal to maintain the internal modeling approach used to calculate the IRRBB capital charge, but raised some concerns in relation to standardizing various aspects of the internal modelling approach. In addition to the proposals consulted on in February 2018, APRA intends to make a number of other amendments to APS 117 to reflect the APRA implementation of the April 2016 Basel standard as well as other changes to strengthen the framework. Depending on the current modeling approach used by IRB institutions, increases in their IRRBB capital charge are expected to result from the proposals to:
- Require the use of a 97.5th percentile expected shortfall measure instead of a 99th percentile confidence interval using a value at risk methodology
- Require the use of absolute shocks for IRB institutions that currently use relative shocks in their IRRBB models
- Place constraints on the duration that an institution can apply to non-maturity deposits according to whether or not it is a core deposit
Related Links
- Proposed IRRBB Standard (PDF)
- APRA Response to First Consultation (PDF)
- Consultations on Capital Framework
Comment Due Date: December 06, 2019
Effective Date: January 01, 2022 (proposed)
Keywords: Asia Pacific, Australia, Banking, Basel III, IRRBB, Interest Rate Risk, IRB Approach, Capital Adequacy, APS 117, APRA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Sets Out Plan to Transform Data Collection from Financial Sector
BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.
BIS Issues Updates on Technology Initiatives on Cross-Border Payments
BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.
ESRB Updates List of Macro-Prudential Measures in February 2021
ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.
BoE Survey Shows Positive COVID Impact on Outsourced Banking Services
BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.
ECB Issues Opinion on Proposal to Regulate Crypto-Asset Markets in EU
In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.
APRA Announces Aggregate Committed Liquidity Facility for Banks
APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).
ECB and UK Authorities Agree on Post-Brexit Supervisory Cooperation
ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.
EIOPA Outlines Strategic Supervisory Priorities for Insurance Sector
EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.