APRA thirsty for bank liquidity
(14 September 2009 – Australia) The Australian Prudential Regulation Authority (APRA) has proposed enhanced liquidity risk management by authorised deposit-taking institutions (ADIs) as part of the lessons learned during the global financial crisis.
APRA undertook a broad-ranging review of its current prudential framework for ADI liquidity risk management, a framework that has been in place for just over ten years.
The review took into account financial market developments and changing ADI practices since the framework was introduced in 1998, lessons learned from the global financial crisis and recent international supervisory developments.
APRA Chairman Dr John Laker said the proposals were designed to build a stronger liquidity buffer into the Australian banking system.
Further, Dr Laker said that APRA's objective was two fold; to strengthen the resilience of ADIs to liquidity risk and improve APRA's ability to assess and monitor ADIs' liquidity risk profiles.
There are four main changes suggested by APRA. The first is enhanced qualitative requirements consistent with the Principles for Sound Liquidity Risk Management and Supervision, issued by the Basel Committee on Banking Supervision in September 2008.
The second proposal is to extend the 'going concern' cash flow projection requirement to all ADIs and lengthening the projection to at least 12 months;
The third is to strengthen the current APRA-defined stress testing to ensure ADIs meet a minimum acceptable level of resilience, which includes lengthening the minimum survival horizon for the current APRA-defined 'name crisis' scenario from five business days to one month; and an additional APRA-defined three-month 'market disruption' stress scenario.
Finally, APRA proposes standardised reporting framework for collecting regular liquidity data from ADIs, including the ability to access data at short notice in times of stress.
After industry feedback, APRA will release a revised draft of the standards early next year, with a view to issuing final standards in the first half of 2010.
The review took into account financial market developments and changing ADI practices since the framework was introduced in 1998, lessons learned from the global financial crisis and recent international supervisory developments.
APRA Chairman Dr John Laker said the proposals were designed to build a stronger liquidity buffer into the Australian banking system.
Further, Dr Laker said that APRA's objective was two fold; to strengthen the resilience of ADIs to liquidity risk and improve APRA's ability to assess and monitor ADIs' liquidity risk profiles.
There are four main changes suggested by APRA. The first is enhanced qualitative requirements consistent with the Principles for Sound Liquidity Risk Management and Supervision, issued by the Basel Committee on Banking Supervision in September 2008.
The second proposal is to extend the 'going concern' cash flow projection requirement to all ADIs and lengthening the projection to at least 12 months;
The third is to strengthen the current APRA-defined stress testing to ensure ADIs meet a minimum acceptable level of resilience, which includes lengthening the minimum survival horizon for the current APRA-defined 'name crisis' scenario from five business days to one month; and an additional APRA-defined three-month 'market disruption' stress scenario.
Finally, APRA proposes standardised reporting framework for collecting regular liquidity data from ADIs, including the ability to access data at short notice in times of stress.
After industry feedback, APRA will release a revised draft of the standards early next year, with a view to issuing final standards in the first half of 2010.
Subscribe