Living will system raises doubts
(10 July 2012 – Australia) The "living will" requirement for each of Australia’s top six banks are due to be submitted to regulators by the end of this month, but doubts have been raised by some over the effectiveness of such planning.
The Australian Prudential Regulation Authority (APRA) plans to introduce the "living wills" detailing the steps banks would take to restore their balance sheets back to health if it entered financial free fall.
The living wills - which include recovery plans for near collapses - are intended to minimise the cost to taxpayers of bank failures and reduce risks to the financial system.
The plans, which will be tested by APRA during this year, will also raise the prospect of splitting core banking businesses from non-banking parts of the organisation as well as strategies for dealing with the media and broader public.
In a submission to a Senate review of the sector, Westpac's head of government affairs, Brett Gale, questioned whether a failing bank could ''realistically carry out its recovery options''.
While resolution planning mostly involves separating or ring-fencing some banking functions, this comes at a cost, he said.
''Such a separation of activities has a necessarily negative impact on the efficiency not only on the operations of banking entities, but on the provision of services to customers,'' Gale said.
APRA's John Laker recently told a parliamentary committee the foundations of Australia's banking system remained ''solid'' despite stresses in Europe and uncertainties about global growth.
Laker noted Australian banks could survive a period of ''months'' without access to global funding markets, given their recent efforts in securing global funds.
The living wills - which include recovery plans for near collapses - are intended to minimise the cost to taxpayers of bank failures and reduce risks to the financial system.
The plans, which will be tested by APRA during this year, will also raise the prospect of splitting core banking businesses from non-banking parts of the organisation as well as strategies for dealing with the media and broader public.
In a submission to a Senate review of the sector, Westpac's head of government affairs, Brett Gale, questioned whether a failing bank could ''realistically carry out its recovery options''.
While resolution planning mostly involves separating or ring-fencing some banking functions, this comes at a cost, he said.
''Such a separation of activities has a necessarily negative impact on the efficiency not only on the operations of banking entities, but on the provision of services to customers,'' Gale said.
APRA's John Laker recently told a parliamentary committee the foundations of Australia's banking system remained ''solid'' despite stresses in Europe and uncertainties about global growth.
Laker noted Australian banks could survive a period of ''months'' without access to global funding markets, given their recent efforts in securing global funds.
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