On 30 January 2014, the Australian Prudential Regulation Authority (APRA) announced changes to the prudential and reporting standards for authorised deposit-taking institutions (ADIs). The changes primarily relate to liquidity requirements – that is, the amount of high-quality, liquid assets held by ADIs to provide a buffer during periods of prolonged liquidity stress in capital markets. Under the current regime, ADIs are required to hold liquid capital sufficient to allow them to continue operating for at least five business days in adverse operating circumstances specific to the ADI. Under the proposed changes, an ADI will need to demonstrate that it can survive for a period of at least 30 days using its own resources, without any need for extraordinary public sector intervention. These changes are intended to provide a more manageable time horizon for APRA and the Reserve Bank of Australia to resolve a liquidity crisis. Under the new requirements, ADIs will typically be required to hold more high-quality, liquid assets compared to what was required under the name crisis. The proposal was assessed by the Office of Best Practice Regulation (OBPR) as likely to have a medium impact on the broader economy, primarily due to the understanding that the Australian banking system has widely accepted the need for improved liquidity risk governance and has already achieved improvements in liquidity risk management. The OBPR has therefore given this a B rating (on a scale of A to D) reflecting that the issue is of medium significance in the broader economy with appreciable competition impacts. In terms of regulatory impacts, ADIs are expected to incur upfront and ongoing compliance costs of implementation as well as the ongoing costs of balance sheet transformation that is undertaken as a result of the implementation. APRA estimates that the combined effect of these costs is less than 10 basis points per annum of assets, including loans. Average annual ongoing compliance costs have been estimated at around $50 million. The expected benefits of the proposed changes include sounder liquidity arrangements at the individual, and systemic levels; and a banking system that retains better access to global funding markets. The OBPR notes that as no decision has been previously announced, an options-stage RIS was not required and a single stage RIS has been prepared. As the proposal was assessed as B-level significance a post-implementation review is required to be completed within 5 years of implementation. The RIS was prepared and certified by APRA and assessed as adequate by the OBPR. More details are provided in the OBPR’s assessment advice to APRA.
- Basel III liquidity reforms RIS – DOCX version [ 90KB]
- Basel III liquidity reforms RIS – PDF version [ 220KB]
- OBPR Assessment Advice – Basel III liquidity reforms RIS – DOCX version [ 149KB]
- OBPR Assessment Advice – Basel III liquidity reforms RIS – PDF version [ 51KB]
- APRA responses and Chairman Certification Letter – DOCX version [ 159KB]
- APRA responses and Chairman Certification Letter – PDF version [ 70KB]