The Australian Prudential Regulation Authority (APRA) today released two new discussion papers and accompanying draft prudential standards on the implementation of the Basel II capital adequacy regime, known as the Basel II Framework.

The first paper introduces the draft prudential standard for the standardised approach to operational risk. The second paper outlines APRA’s approach to the implementation of the internal ratings-based (IRB) approach to credit risk.

APRA’s Chairman, Dr John Laker, said APRA expects that the vast majority of authorised deposit-taking institutions (banks, building societies and credit unions) will use the standardised approach, rather than the IRB approach, in determining their regulatory capital charge for credit risk.

'Authorised deposit-taking institutions will require individual approval from APRA before the IRB approach can be used for regulatory capital purposes', he said.

These new discussion papers follow APRA’s release, in April 2005, of a discussion paper on the standardised approach to credit risk. The proposed standards form part of a suite of Basel II prudential standards, which are expected to be finalised in 2007. The Basel II Framework will come into force in Australia on 1 January 2008.

APRA invites comments on the discussion papers by 31 December 2005.

Written submissions on the discussion papers and draft prudential standard should be forwarded by 31 December 2005 to basel2@apra.gov.au

The discussion papers and draft prudential standard are available on APRA's web site at: http://www.apra.gov.au/adi/ADI-Publications.cfm

and http://www.apra.gov.au/Policy/Draft-Prudential-Standards-and-Guidance-Notes-for-Authorised-Deposit-Taking-Institutions.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 $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.