This in response to this year’s global banking turmoil
APRA has taken on an initiative to fortify the resilience of the banking sector, after this year’s banking turmoil exposed the risk of irregular updates to the valuation of liquid assets and reinforced the importance of minimising contagion risks.
In response to bank crisis events witnessed in the US and Europe earlier this year, APRA has begun consulting on targeted changes to liquidity and capital requirements.
Outlined in a letter addressed to authorised deposit-taking institutions (ADIs), the proposed amendments to the prudential framework are targeted towards how banks manage their liquidity.
The changes were designed to primarily impact banks operating under the Minimum Liquidity Holdings (MLH) regime, rather than the more complex Liquidity Coverage Ratio (LCR) mainly used by larger banks. Approximately 60% of ADIs are currently under the MLH regime, while the remaining institutions fall under the LCR regime.
“These targeted revisions aim to ensure that stress at one bank doesn’t have an outsized impact on the system, that liquid assets are prudently valued, and that banks are adequately prepared to access central bank liquidity where needed,” said Therese McCarthy Hockey (pictured above), APRA member.
Recognising the potential impact on smaller banks, including financial implications, McCarthy Hockey assured that APRA would carefully consider options to mitigate these effects as part of the ongoing consultation process.
In a media release, APRA said it also plans to conduct a series of workshops during the consultation period to gather industry feedback and suggestions. The prudential regulator aims to finalise the consultation process in the first half of 2024.
The APRA letter, detailing proposed changes to liquidity and capital requirements for authorised deposit-taking institutions, is accessible on APRA's website.
Read more about this issue in "Are Australian banks as risky as their failed US counterparts?" and "UBS snaps up Credit Suisse in rescue mission".
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