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APRA advises regulatory approach to RBA Term Funding Facility

Monday 30 March 2020

The Australian Prudential Regulation Authority (APRA) today confirmed its regulatory approach to the Term Funding Facility (TFF) announced by the Reserve Bank of Australia (RBA) on 19 March 2020.

The RBA has established the TFF to reinforce the benefits to the economy of a lower cash rate, and encourage authorised deposit-taking institutions (ADIs) to support businesses over the period ahead.1 The TFF provides ADIs with access to three-year funding at a low interest rate, and provides additional incentives for lending to businesses, with a particular emphasis on lending to small and medium-sized enterprises. 

All ADIs are encouraged to consider taking advantage of the TFF to support their customers and help the economy through a difficult period.

A core component of the TFF is the RBA’s commitment to make funding available to ADIs equivalent to 3 per cent of an ADI’s total credit outstanding to Australian resident households and (non-related) businesses (the Initial Allowance). APRA will allow ADIs to include the benefit of the Initial Allowance in the calculation of the Liquidity Coverage Ratio, Minimum Liquidity Holdings Ratio and Net Stable Funding Ratio from 31 March 2020, to the extent they have the necessary unencumbered collateral to access the facility. 

APRA will provide further details to ADIs once the RBA has finalised its operational requirements for the TFF.


Footnote

1Reserve Bank of Australia, ‘Term Funding Facility to Support Lending to Australian Businesses’ (19 March 2020) <https://www.rba.gov.au/mkt-operations/announcements/term-funding-facility-to-support-lending-to-australian-businesses.html>

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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, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.