Australian regulator bumps up capital requirments
(19 July 2017 – Australia) The Australian Prudential Regulatory Authority (APRA) says Australia’s four major banks will need to have common equity tier 1 (CET1) capital ratios of “at least” 10.5 percent, equivalent to an extra 150 basis points added to their minimum capital requirements.
APRA said the new rules would apply to all banks using the internal ratings-based approach from 1 January 2020, while all other banks would have their minimum capital requirement hoisted 50 basis points.
“This calibration recognises that ADIs using the IRB approach are currently operating with a higher capital surplus above regulatory minimums, in anticipation of APRA’s implementation of the FSI’s recommendation,” APRA said.
“APRA, therefore, expects that some of the increase in minimum requirements might be met through the surplus these ADIs hold in excess of minimum regulatory requirements.”
In broad terms that translated to a benchmark CET1 capital ratio of 10.5 per cent.
Responding to the announcement, National Australia Bank, ANZ, Westpac and Commonwealth Bank (CBA) all said in separate statement that they were in good positions to meet the new targets.
Macquarie Group said the planned new rules would increase its minimum capital requirements by around A$1.4 billion. However the bank said it believes its current capital surplus “is sufficient” to accommodate the proposed increase in minimum capital requirements.
The new rules are the latest in a sustained effort by regulators around the world to restore the financial system that seized up during the global financial crisis amid billions in losses, bailouts and taxpayer guarantees.
APRA chairman, Wayne Byres said, “APRA’s objective in establishing unquestionably strong capital requirements is to establish a banking system that can readily withstand periods of adversity without jeopardising its core function of financial intermediation for the Australian community.”
The proposed capital requirements would ensure the banking sector can better handle adversity and reduce the need for public-sector support he said.
“APRA believes this latest capital strengthening can be achieved in an orderly way,” he said.
Subscribe