APRA releases response to consultation on interest rate risk in banking book requirements

The Australian Prudential Regulation Authority (APRA) has 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) for authorised deposit-taking institutions (ADIs).

The paper released today responds to the feedback received on APRA’s proposed revisions to APS 117 to strengthen the interest rate risk in the banking book framework for ADIs, initially published for consultation in February 2018 and further consulted on in September 2019.

As part of this response paper, APRA is also proposing new revisions to APS 117 which are designed to further reduce volatility in the IRRBB capital charge calculation as well as creating better incentives for ADIs in managing their IRRBB risk. 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, draft APS 117 and non-confidential submissions are available on the APRA website at: Revisions to the capital framework for authorised deposit-taking institutions.

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