The Australian Prudential Regulation Authority (APRA) has today released for consultation a discussion paper and draft amendments to Prudential Standard APS 110 Capital Adequacy (APS 110) and Prudential Standard APS 330 Public Disclosure (APS 330), which outline APRA’s proposed implementation of new disclosure requirements for authorised deposit-taking institutions (ADIs).
The disclosures are in relation to:
- the leverage ratio;
- the liquidity coverage ratio (LCR); and
- global systemically-important banks (G-SIBs).
These proposals form part of APRA’s implementation of the post-crisis reforms that aim to promote a more resilient banking sector, and are intended to improve market discipline and transparency by equipping market participants with key information about an ADI’s risk profile.
Leverage ratio disclosures
APRA proposes that a locally incorporated ADI, with approval from APRA to use an internal ratings-based approach to credit risk under the risk-based capital adequacy framework, be required to disclose certain quantitative and qualitative information about its leverage ratio, calculated in accordance with the proposed methodology set out in draft APS 110.
There is no minimum leverage ratio requirement proposed by APRA at this stage; any decision on implementation of a minimum leverage requirement will only be taken by APRA once the Basel Committee on Banking Supervision agrees a minimum international standard.
Supplementing the LCR, which will come into force from 1 January 2015, APRA proposes that those ADIs subject to the LCR disclose certain data in relation to their ratios, and provide sufficient qualitative discussion to enable market participants to gain a broad picture of their liquidity risk profile.
Disclosures for the identification of potential G-SIBs
The internationally-agreed framework for identifying G-SIBs requires that large banks (defined as those with a leverage ratio exposure measure above EUR 200 billion) disclose 12 indicators used in the G-SIB identification methodology. This disclosure ensures that the framework remains transparent, and that interested parties are able to anticipate when and how the G-SIB requirements, including additional capital requirements, will be applied.
Even though they are not currently identified as G-SIBs, APRA proposes that the four major Australian ADIs — Commonwealth Bank of Australia, Australia and New Zealand Banking Group Limited, National Australia Bank and Westpac Banking Corporation — disclose the 12 indicators used in the G-SIB identification methodology.
Other minor amendments
APRA is also taking this opportunity to consult on proposed minor amendments to APS 110 and APS 330 to rectify minor deviations from the Basel framework identified during the Basel Committee’s Regulatory Consistency Assessment Programme (RCAP) review of Australia. The proposed amendments will improve Australia’s consistency with the internationally-agreed framework.
APRA invites written submissions on these proposals by 31 October 2014. Following consideration of submissions received, APRA intends to finalise these requirements with an implementation date of 1 January 2015. In practice, the first disclosures under these proposals will be due around mid-May 2015 for most ADIs.
The discussion paper and draft amendments to APS 110 and APS 330 can be found on the APRA website at: www.apra.gov.au/adi/Pages/September-2014-Consultation-disclosure-leverage-ratio-LCR-GSIBs.aspx
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. It oversees Australia’s banks, credit unions, building societies, life and general insurance companies and reinsurance companies, friendly societies and most 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 $4.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.
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