Banks told to prep IT systems for possibility of negative rates – Finance – Software

Nancy J. Delong

Australia’s financial institutions have been directed to prepare their IT units to deal with the prospect of zero or adverse interest costs by the stop of April future yr. The Australian Prudential Regulation Authority (APRA) mentioned today that it had created to the financial institutions in December last yr pertaining […]

Australia’s financial institutions have been directed to prepare their IT units to deal with the prospect of zero or adverse interest costs by the stop of April future yr.

The Australian Prudential Regulation Authority (APRA) mentioned today that it had created to the financial institutions in December last yr pertaining to the problem and potential ‘timeframes for rectification [or] mitigation.”

Even though noting Reserve Lender of Australia suggestions that “a adverse funds fee is very unlikely in Australia,” APRA noted this “does not preclude the chance of a adverse funds fee in the future”, nor did it preclude making ready for that potential eventuality.

APRA mentioned that first feedback from authorised deposit-using establishments (ADIs) – aka financial institutions – was that they are “typically effectively-put to deal with zero and adverse industry interest costs on economical industry goods this kind of as individuals typically managed in a treasury system.” 

“However, for some ADIs, zero and adverse interest costs on other goods (e.g. wholesale and retail lending and deposit goods) would pose operational difficulties,” the authority noted [pdf].

“Furthermore, a variety of ADIs noted substantial expenses and competing priorities as currently being constraints for the implementation of long lasting remedies.”

APRA mentioned that a “lack of preparedness” could be material for financial institutions, if zero or adverse costs arrived into perform, and banks’ technological know-how units were insufficient.

“APRA expects ADIs to, at a minimum amount, produce tactical remedies to carry out zero and adverse industry interest costs and funds fee by April thirty 2022,” the authority mentioned today.

“Tactical remedies are typically shorter-expression fixes, involving workarounds on the periphery of present units, together with overrides in downstream units.”

APRA is using submissions from financial institutions and other stakeholders on the problem right until mid-August.

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