Big four argue against additional Tier II requirements
(13 January 2019 – Australia) The big four banks are lobbying the prudential regulator to revise a proposal that would see the banks forced to raise an additional $75 billion of Tier II bonds to meet “too big to fail” capital requirements.
The efforts are in response to an Australian Prudential Regulation Authority consultation paper, released in November, which said the banks should raise additional Tier II funds to comply with global ‘total loss absorbing capital’ rules intended to limit future taxpayer bails outs by “bailing in” private investors.
The big four banks have argued that the global market for these bonds may not be large enough for them to raise the additional capital. They have estimated they would have to raise between $67 billion and $83 billion over four years.
While banks have selectively raised this capital from individual Australian investors, the majority is raised from offshore institutions and the increased funding burden of this relatively expensive debt would likely increase overall funding costs with potential knock on effects for lending rates.
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