Documentation of interest rate risk in tDocumentation of interest rate risk in the banking book framework

Documentation of interest rate risk in the banking book framework

1. An ADI’s IRRBB management framework must be clearly documented.

2. Documentation relating to the IRRBB measurement system must be comprehensive and provide a level of detail sufficient to ensure that an ADI’s approach to determining its IRRBB capital requirement is transparent and capable of independent review and validation.

3. An ADI’s technical documentation relating to its IRRBB measurement system must include the following information:

4. the rationale for all assumptions and specifications underpinning the IRRBB measurement system;

5. the analytics and relevant theory behind all calculations;

6. details of interest rate model parameters and assumptions, and any other assumptions made, whether implicitly within the model or explicitly as inputs to it, when modelling each component of IRRBB, including the ADI’s justification for their use and the processes undertaken for checking and validating those assumptions;

7. an explanation of how the ADI ensures that the required soundness standard (refer to paragraph 30 of this Prudential Standard) is achieved; and

8. details of dependence structures used in the measurement system, including evidence supporting their use.