Aussie banks not far ahead of the pack for Basel III implementation
(6 June 2013 – Australia) The financial regulator is avoiding the opportunity to delay reforms and will go ahead with the implementation of rules designed to make lenders safer during times of financial stress.
Australian Prudential Regulation Authority (APRA), Chairman John Laker dismissed claims Australia was ahead of the world in implementing Basel III requirements, saying several overseas competitors of the big four Aussie banks had already met the standards.
The local regulator plans to start the reforms from 2015, in contrast to overseas plans to delay the commencement until 2019. This conservative stance has sparked complaints from the banking lobby group that Australia was rushing ahead of the pack.
'My view has been that we should be in the leading part of the convoy because the arrangements in Australia will allow our banks to meet that target by turning up a facility [operated by] the Reserve Bank of Australia (RBA),' Laker said.
Under the upcoming liquidity rules, banks must hold enough easy-to-sell assets to cover their lending outflows for a month - what APRA calls a 'significantly severe liquidity stress scenario'.
Dr Laker said the regulator was avoiding the opportunity to delay the reforms because the financial system was not under the same pressures as overseas. He also said the target would help curb risks from banks' reliance on volatile wholesale debt markets.
'The International Monetary Fund (IMF) continually draws attention to the vulnerability of the Australian banking system to dislocation in offshore funding markets because our banks continue to rely on those markets,' Laker said.
'We think it's incumbent on our banking system to demonstrate, given that they have this reliance, that they are able to meet liquidity pressures.'
It has been argued the facility is too generous to the banks, but Laker said APRA would encourage banks to take 'all reasonable efforts' to use their own balance sheets before using the facility.
'No prudential regulator around the world wants the central bank to become the lender of first resort,' Laker said.
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