Definitions

1. The following definitions are used in this Prudential Standard:
   1. approved IRRBB model – means a currently APRA-approved internal model for determining an ADI’s IRRBB capital charge;
   2. banking book – an ADI’s banking book is comprised of:
      1. on-balance sheet asset, liability or equity items that are:
         1. not part of an ADI’s trading book, as determined under the ADI’s trading book policy statement (refer to Attachment A to Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116));
         2. not deducted from an ADI’s Common Equity Tier 1 Capital under Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111); and
         3. not included in an ADI’s Common Equity Tier 1 Capital (refer to APS 111);

or

1. an off-balance sheet position that alters an ADI’s exposure to interest rate risk and is not part of the ADI’s trading book.

2. calculation date – means the date with reference to which an ADI’s IRRBB capital charge is calculated, such that the exposures and observations of interest rates used in the calculation are recorded at the close of business on that day;

3. earnings at risk – means the potential impact of interest rate changes on the net interest income earned on the ADI’s banking book;

4. economic value – means:

   1. fair value, where it can be determined; or
   2. the net present value of expected cash flows, otherwise;

5. economic value sensitivity – means the potential impact of interest rate changes on the economic value of the ADI’s banking book;

6. IRB ADI – means an ADI that has been granted approval by APRA to use the internal ratings-based (IRB) approach to credit risk;

7. IRRBB capital charge – means the capital that an ADI is required to hold in relation to IRRBB;

8. IRRBB management framework – means the organisational structures, processes and systems used in identifying, assessing, measuring, monitoring, controlling and mitigating IRRBB;

9. IRRBB measurement system – means the systems and data used to measure IRRBB. An ADI’s IRRBB measurement system forms part of its IRRBB management framework. For an ADI that has IRRBB model approval, the IRRBB measurement system includes, but is not limited to, its approved IRRBB model;

10. IRRBB model approval – means an approval granted by APRA, for an ADI to use an internal model for determining its IRRBB capital charge;