The Australian Prudential Regulation Authority (APRA) today released the suite of prudential standards that will give effect to the implementation of the new Basel II capital adequacy regime, known as the Basel II Framework, in Australia.

The Basel II Framework is a major global reform of capital adequacy requirements for banking systems that seeks to harness into the regulatory process best practices in risk management. In Australia, all authorised deposit‑taking institutions (ADIs) – banks, building societies and credit unions – will be subject to the Framework.

The Basel II prudential standards have been finalised after extensive industry consultation, dating back to 2005. This consultation process has aimed at ensuring that the adoption of the Basel II Framework in Australia maintains the integrity of APRA’s prudential framework, is appropriately tailored to reflect local circumstances and takes into account practical implementation issues. The standards are accompanied by a response paper that addresses issues raised by industry on the final drafts of these standards.

APRA Chairman Dr John Laker said that the Basel II Framework will enhance the safety and efficiency of the Australian banking system.

“This fundamental reform will promote stronger and more accurate management and pricing for risk, and more risk‑sensitive capital requirements. Overall, it is likely to involve a modest reduction in regulatory capital requirements, consistent with the underlying asset quality and risk management systems of ADIs in Australia”, he said.

The vast majority of ADIs in Australia will adopt the Basel II standardised approaches. APRA will shortly announce those ADIs it has approved to use the Basel II advanced approaches as from 1 January 2008.

The Basel II prudential standards will come into force on 1 January 2008. The standards and response paper are available on APRA's website at 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 $3 trillion in assets for 21 million Australian depositors, policyholders and superannuation fund members.

Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276

All other inquiries:
APRA Contact Centre 1300 131 060.