As part of the Basel III reforms to the capital framework introduced in 2013, APRA requires locally incorporated ADIs (other than providers of purchased payment facilities) to hold a buffer of Common Equity Tier 1 (CET1) capital, over and above each ADI’s minimum requirement, comprised of three components:
a capital conservation buffer, applicable to at all times, generally equal to 2.5 per cent of risk-weighted assets;
an additional capital buffer applicable to any ADI designated by APRA as a domestic systemically important bank (D-SIB), currently set to 1.0 per cent of risk-weighted assets; and
a countercyclical capital buffer applicable to all affected ADIs, but which may vary over time as a result of changes to the jurisdictional buffer set by APRA or national authorities in other jurisdictions in response to market conditions. The Australian jurisdictional countercyclical capital buffer may range between zero and 2.5 per cent of risk-weighted assets.
Capital conservation buffer
The requirements for the capital conservation buffer are set out in Prudential Standard APS 110 Capital Adequacy.
Guidance on the operation of the countercyclical capital buffer and on the operation of constraints on capital distributions where an ADI’s CET1 falls within the capital buffer range is set out in Prudential Practice Guide APG 110 Capital Buffers.
Domestic systemically important banks in Australia
This information paper sets out APRA's methodology for assessing which ADIs are Domestic systematically important banks in Australia (D-SIBs).
APRA determined in December 2013 that the following ADIs are D-SIBs:
- Australia and New Zealand Banking Corporation.
- Commonwealth Bank of Australia.
- National Australia Bank; and
- Westpac Banking Corporation.
APRA determined that the additional capital buffer for D-SIBs is 1.0 per cent of risk-weighted assets, to be held in CET1 Capital from 1 January 2016 as an extension to the capital conservation buffer.
Countercyclical capital buffer
This Information Paper, The countercyclical capital buffer in Australia, sets out APRA's approach to assessing the appropriate settings for the countercyclical capital buffer:
The requirements for the countercyclical capital buffer are set out in Prudential Standard APS 110 Capital Adequacy.
The Basel Committee on Banking Supervision has a webpage on which any country with countercyclical capital buffer requirements — including non-Basel Committee members — may list their buffer rates.
From 1 January 2018, ADIs are required to report their ADI-specific countercyclical capital buffer under Reporting Standard ARS 110.0 Capital Adequacy.
Australian jurisdictional buffer rate
Effective from 1 January 2016: zero per cent of risk-weighted assets.
Media release: APRA announces countercyclical capital buffer rate for ADIs December 2015.