APRA pushes through “living will”
(28 September 2011 – Australia) The Australian Prudential Regulation Authority (APRA) is considering expanding the asset recovery plan to include smaller banks and credit unions, as well as insurers in the event of their failures.
For now, APRA is pushing ahead with a so-called "living will" for the top six banks, aimed at thrashing out how to break up their balance sheets in the event of a failure.
The plans aim to minimise the cost to taxpayers of bank failures, as well as reduce risk to the financial system.
Details were contained in a review of Australia's banking sector by the Swiss-based Financial Stability Board, an organisation backed by the Bank of International Settlements.
The review gave the system a strong endorsement, noting it weathered the financial crisis well. ''The resilience of the system largely reflected the resilience of the economy at large,'' the FSB said in its latest assessment.
But it cautioned that further work was needed to reduce the banks' reliance on wholesale funding.
It also took aim at the concentration of the big four banks, saying the size and nature of their activities ''could pose systemic and moral hazard risks in Australia''.
The review came as European authorities were reportedly preparing for a Greek debt default. These include plans to expand a stabilisation war chest to throw up financial firewalls in the event of a crisis.
Commonwealth Bank chief executive Ralph Norris yesterday said his bank had avoided holding European sovereign bonds and had been scrutinising counter-party risks since the onset of the financial crisis.
He said CBA did not need to raise funding in 2011, meaning the bank will avoid a run-up in borrowing costs.
''I would suggest we are very strongly placed to be able to weather any storm that may occur as a result of what's happening in Europe,'' Mr Norris said.
Australian banking system exposure to Europe represents only 1 percent of the big banks' total outstanding loans.
The plans aim to minimise the cost to taxpayers of bank failures, as well as reduce risk to the financial system.
Details were contained in a review of Australia's banking sector by the Swiss-based Financial Stability Board, an organisation backed by the Bank of International Settlements.
The review gave the system a strong endorsement, noting it weathered the financial crisis well. ''The resilience of the system largely reflected the resilience of the economy at large,'' the FSB said in its latest assessment.
But it cautioned that further work was needed to reduce the banks' reliance on wholesale funding.
It also took aim at the concentration of the big four banks, saying the size and nature of their activities ''could pose systemic and moral hazard risks in Australia''.
The review came as European authorities were reportedly preparing for a Greek debt default. These include plans to expand a stabilisation war chest to throw up financial firewalls in the event of a crisis.
Commonwealth Bank chief executive Ralph Norris yesterday said his bank had avoided holding European sovereign bonds and had been scrutinising counter-party risks since the onset of the financial crisis.
He said CBA did not need to raise funding in 2011, meaning the bank will avoid a run-up in borrowing costs.
''I would suggest we are very strongly placed to be able to weather any storm that may occur as a result of what's happening in Europe,'' Mr Norris said.
Australian banking system exposure to Europe represents only 1 percent of the big banks' total outstanding loans.
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