Tightening the liquidity belt
(23 October 2009 – Australia) The implementation of new liquidity rules may force banks to increase the number of liquid assets they hold as protection according to the Australian Prudential Regulation Authority (APRA).
Earlier in the month APRA proposed changes to the liquidity rules currently governing the industry, saying the existing rules are insufficient.
Under the new proposals, banks could be forced to increase the number of liquid assets they hold as protection against short term loss of access to global capital markets.
The current liquidity level requires banks to survive for one week if access to the global capital markets in restricted. They would now be required to survive for one month.
Further, bank bills and mortgage backed securities would no longer qualify as liquid assets.
The banks would be required to compose their liquidity levels of only high quality assets such as government bonds.
Charles Littrell, executive general manager of policy, APRA, told a Senate estimates hearing yesterday that the banks would have to develop new systems and reorganise their balance sheets to comply with the liquidity proposals.
Under the new proposals, banks could be forced to increase the number of liquid assets they hold as protection against short term loss of access to global capital markets.
The current liquidity level requires banks to survive for one week if access to the global capital markets in restricted. They would now be required to survive for one month.
Further, bank bills and mortgage backed securities would no longer qualify as liquid assets.
The banks would be required to compose their liquidity levels of only high quality assets such as government bonds.
Charles Littrell, executive general manager of policy, APRA, told a Senate estimates hearing yesterday that the banks would have to develop new systems and reorganise their balance sheets to comply with the liquidity proposals.
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