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APRA proposes enhanced liquidity requirements for ADIs

Friday 11 September 2009


The Australian Prudential Regulation Authority (APRA) has today released for consultation proposals to enhance liquidity risk management by authorised deposit-taking institutions (ADIs). APRA has undertaken a broad-ranging review of its current prudential framework for ADI liquidity risk management, set out in Prudential Standard APS 210 Liquidity. The review has taken into account financial market developments and changing ADI practices since the framework was introduced in 1998, lessons learned from the global financial crisis and recent international supervisory developments.APRA Chairman Dr John Laker said 'APRA's objective is to strengthen the resilience of ADIs to liquidity risk and improve APRA's ability to assess and monitor ADIs' liquidity risk profiles. These proposals represent the first round of consultation on a regime to build stronger liquidity buffers in our banking system.'The proposed changes include:

  • enhanced qualitative requirements consistent with the Principles for Sound Liquidity Risk Management and Supervision, issued by the Basel Committee on Banking Supervision in September 2008;
  • extending the 'going concern' cash flow projection requirement to all ADIs and lengthening the projection to at least 12 months;
  • strengthening the current APRA-defined stress testing to ensure ADIs meet a minimum acceptable level of resilience, which includes:
  • lengthening the minimum survival horizon for the current APRA-defined 'name crisis' scenario from five business days to one month; and
  • an additional APRA-defined three-month 'market disruption' stress scenario; and
  • a standardised reporting framework for collecting regular liquidity data from ADIs, including the ability to access data at short notice in times of stress.

Subject to industry feedback and ongoing international supervisory developments, APRA will release a revised draft APS 210, an associated prudential practice guide (PPG), draft reporting standards and second-round draft reporting forms (including instructions) for further consultation early in 2010. APRA intends to issue final standards and reporting forms in the first half of 2010, although this timetable may be amended as international initiatives in this area evolve. Transition arrangements will apply as appropriate. The consultation package can be found on the APRA website.

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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.