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APRA finalises implementation of Liquidity Coverage Ratio in Australia

Tuesday 4 November 2014



The Australian Prudential Regulation Authority (APRA) today released an updated version of Prudential Standard APS 210 Liquidity (APS 210), and the associated reporting framework.

Most importantly, APS 210 provides for the introduction in Australia of the Liquidity Coverage Ratio (LCR), a key component of the Basel III package of reforms designed to improve the banking system’s resilience to periods of financial market stress. The LCR comes into force from 1 January 2015.

Alongside release of the standard, the implementation of the LCR requires APRA to finalise assessments of the applications from authorised deposit-taking institutions (ADIs) to utilise a Committed Liquidity Facility (CLF) from the Reserve Bank of Australia (RBA) as a means of meeting their LCR requirements. This assessment has also been completed.

Revised standard

Changes to APS 210 to incorporate the LCR were released by APRA in January 2014. The revised standard released today introduces, as an interim measure, changes to the way the LCR is applied to foreign bank branches. These changes are designed to overcome some challenges in introducing the new framework in the context of foreign bank branches operating in Australia.

The revised arrangements continue to subject foreign bank branches to a 30-calendar day liquidity requirement, as is standard for the LCR. However, they will only be required to meet a minimum holding of high quality liquid assets of 40 per cent. In meeting this requirement, foreign bank branches will not be eligible to apply for a CLF with the RBA.

APRA plans to more broadly consider the nature and structure of liquid asset requirements to foreign bank branches in 2015. APRA will consult with ADIs and other interested stakeholders as it undertakes this review.

Reporting requirements

APRA also released today other prudential and reporting standards amendments that relate to consultations undertaken by APRA from April 2014 in relation to the requirement for all ADIs to be able to produce a set-format daily liquidity report. This set-format report is intended to play an important role in APRA’s ability to manage a liquidity crisis, by ensuring all ADIs are able to produce, on demand, key liquidity information in a consistent format.

The letter to all ADIs and the amended prudential and reporting standards can be found on APRA’s website.

Committed Liquidity Facilities

All ADIs subject to the LCR were invited to apply for a CLF to assist them in meeting the new requirement. Fourteen locally-incorporated ADIs did so, requesting CLFs of approximately $288 billion in total.

After assessment of the applications, APRA granted approval to all of the 14 ADIs to use CLFs to meet their LCR requirements. The aggregate amount of these approvals was approximately $275 billion.

The letter to all ADIs on the aggregate CLF results for calendar year 2015 can be found on APRA’s website.

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 trillion in assets for Australian depositors, policyholders and superannuation fund members.