The Australian Prudential Regulation Authority (APRA) today released a paper that sets out its responses to submissions on its proposals to implement the advanced approaches under the new Basel II capital adequacy regime, known as the Basel II Framework.
APRA’s response paper addresses issues raised in submissions and is accompanied by three final draft prudential standards and their respective prudential practice guides that incorporate a number of amendments suggested in the consultation process.
The final draft prudential standards cover:
- the internal ratings-based approach to credit risk [first release in July 2005];
- the advanced measurement approaches (AMA) to operational risk [second release in October 2006]; and
- the treatment of interest rate risk in the banking book [first release in March 2006].
APRA Chairman Dr John Laker said that the advanced Basel II approaches are the most complex that will be available to an authorised deposit-taking institution (ADI) for determining its capital requirements.
"These approaches better align the regulatory capital charges for credit, operational and non-traded interest rate risk with the risk profile of an ADI, since they are based on an ADI’s own internal risk measurement systems", he said.
ADIs will need to obtain APRA’s approval to use these advanced approaches. The vast majority of ADIs - banks, building societies and credit unions - will use the standardised approaches in determining their regulatory capital requirements.
The proposals form part of the Basel II capital adequacy regime for ADIs that will come into force on 1 January 2008. The full suite of Basel II prudential standards is expected to be finalised in late 2007.
Comments on the response paper, the final draft prudential standards APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, APS 115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk and APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book, and their respective prudential practice guides are invited by 27 July 2007 and can be emailed to basel2@apra.gov.au.
These documents are available on APRA's website at http://www.apra.gov.au/ADI/Basel-II-implementation-in-Australia.cfm.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.
Media and industry inquiries only:
Andrew McCutcheon, Public Affairs Manager
Australian Prudential Regulation Authority
Telephone: 02 9210 3143
Mobile: 0417 528 660
All other inquiries:
APRA Contact Centre 1300 131 060
