Interest Rate Risk in the Banking Book (IRRBB) Policy¶
| Code | CLQ-004 |
| Domain | Capital & Liquidity |
| Owner | Chief Financial Officer |
| Status | Draft |
| Applicability | Platform |
| Jurisdiction | NZ + AU |
| Business domain | BD03 |
| Review date | 2027-03-25 |
Regulations: Interest Rate Risk in the Banking Book · Basel III / Basel IV — Capital and Liquidity Framework · DTA Capital Standard¶
Purpose¶
Govern the identification, measurement, monitoring, and management of interest rate risk in the banking book (IRRBB), including Economic Value of Equity (EVE) and Net Interest Income (NII) sensitivity. Ensures that IRRBB exposures are maintained within Board-approved limits and that regulatory requirements under RBNZ and APRA are met.
Scope¶
All banking book positions that generate interest rate risk, including fixed-rate and variable-rate loans, deposits, securities, off-balance-sheet interest rate exposures, and internal fund transfer pricing positions. Covers NZ and AU operations.
Policy statements¶
IRRBB metrics — including EVE sensitivity and NII sensitivity across the standard regulatory shock scenarios — SHALL be computed at least monthly and following any material change in the balance sheet composition or interest rate environment.
All IRRBB metrics SHALL be computed using the governed IRRBB model (MOD-035). Manual IRRBB calculations are prohibited for metrics submitted to regulators, the Board, or the ALCO.
The standard interest rate shock scenarios required by RBNZ (DTA: IRRBB) and APRA (APS 117) SHALL be applied in full and the results reported in the applicable prudential returns.
EVE and NII sensitivity limits SHALL be defined in the Risk Appetite Statement (GOV-002). A breach of any IRRBB limit SHALL trigger an immediate alert to the CRO and Treasurer, with escalation to the Board within 24 hours.
IRRBB model assumptions — including prepayment rates, non-maturity deposit behavioural repricing, pipeline assumptions, and product optionality — SHALL be documented, reviewed, and approved by the CRO at least annually.
The IRRBB model SHALL be subject to independent validation at least annually per DT-005 (Model Risk Management Policy), including back-testing of non-maturity deposit models against observed repricing behaviour.
The four components of IRRBB — repricing risk, yield curve risk, basis risk, and optionality risk — SHALL each be explicitly identified, measured, and included in the monthly IRRBB report.
IRRBB results SHALL be presented to the ALCO at each meeting. Significant changes to the IRRBB profile SHALL be escalated to the Board Risk Committee at its next meeting.
The platform SHALL maintain a hedging strategy that identifies approved instruments and limits for managing IRRBB exposures. Any hedging transaction SHALL be executed within the approved hedging strategy limits.
All IRRBB calculations, model validation reports, limit records, and ALCO papers SHALL be retained for 7 years.
Satisfying modules¶
| Module | Name | Mode | Description |
|---|---|---|---|
| MOD-003 | Real-time balance engine | CALC |
IRRBB repricing model uses live rate-sensitive balance positions |
| MOD-005 | Daily accrual calculator | CALC |
Rate-sensitive asset/liability positions updated automatically as accruals post |
| MOD-006 | Rate change propagation | CALC |
IRRBB repricing gap updated automatically when rates change across the book |
| MOD-025 | FX rate lock & conversion | CALC |
FX position updated on each conversion — IRRBB and FX risk exposure current at all times |
| MOD-035 | IRRBB / EVE / NII model | CALC |
IRRBB metrics computed from live balance sheet positions — not a quarterly exercise |
Part of Capital & Liquidity · Governance overview
Compiled 2026-05-22 from source/entities/policies/CLQ-004.yaml