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APRA proposes targeted changes on liquidity and capital in response to global banking turmoil

The Australian Prudential Regulation Authority (APRA) has begun consulting on targeted changes to liquidity and capital requirements aimed at strengthening the banking sector’s resilience to future stress.

The proposed amendments, outlined in a letter to authorised deposit-taking institutions (ADIs), reflect lessons learned from bank crisis events in the United States and Europe earlier this year.

APRA is proposing a series of changes to the prudential framework chiefly targeting how banks manage their liquidity. The changes would primarily impact banks that are subject to the Minimum Liquidity Holdings (MLH) regime, rather than the more complex Liquidity Coverage Ratio (LCR) mainly used by larger banks1

APRA Member Therese McCarthy Hockey said: “This year’s banking turmoil overseas highlighted the threat that can arise when banks don’t regularly update the value of their liquid assets; it also reinforced the importance of minimising contagion risks.

“As a result, these targeted revisions aim to ensure that stress at one bank doesn’t have an outsized impact on the system, that liquid assets are prudently valued, and that banks are adequately prepared to access central bank liquidity where needed.

“We recognise the impact these proposals may have on some smaller banks, including financially, and will carefully consider options to mitigate this as part of the consultation process,” Ms McCarthy Hockey said.

In addition to accepting written submissions, APRA plans to hold a series of workshops during the consultation period to gather feedback and suggestions from the banking industry. APRA intends to finalise this consultation in the first half of next year.

Copies of today’s letter are available on APRA’s website at: Proposed changes to liquidity and capital requirements for authorised deposit-taking institutions.


1  Currently around 60 per cent of ADIs are subject to the MLH regime, with the remainder subject to the LCR regime.

Capital framework

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.