The Australian Prudential Regulation Authority (APRA) today released guidelines outlining amendments to the capital adequacy standards applying to banks. These guidelines give effect to the Basel Committee on Banking Supervisions decision last October that endorsed the inclusion of innovative equity instruments in tier 1 capital. They were produced following discussion with banks of draft guidelines circulated in March 1998.
The main changes to existing guidelines are:
- Specification of the criteria for capital instruments to qualify as tier 1 capital. These essential characteristics include that the instrument be a permanent and unrestricted commitment of funds; be available to absorb losses; have no fixed servicing obligations; and be subordinated to the interests of depositors and other creditors;
- Provision under which capital instruments issued via special purpose vehicles may be eligible for inclusion in tier 1 capital.
APRA believes the new guidelines will allow Australian banks to compete on level terms in international capital markets. They give banks greater flexibility in capital management, without compromising the degree of support which a bank and its depositors obtain from tier 1 capital.
The new guidelines can be found on APRAs web site http://www.apra.gov.au
For further information contact:
David Lewis
General Manager
Diversified Institutions,
Phone: (02) 9210 3309 Fax: (02) 9210 3300
