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APRA releases enhancements to Basel II Framework

Monday 23 May 2011


The Australian Prudential Regulation Authority (APRA) has released amendments to relevant prudential standards, prudential practice guides (PPGs) and reporting forms to give effect to enhancements to the Basel II Framework in Australia. The Basel II Framework is a global capital regime that was introduced for authorised deposit‑taking institutions (ADIs) in Australia on 1 January 2008.

The amendments are a response to a package of measures released by the Basel Committee on Banking Supervision in July 2009, and adjusted in June 2010. The measures aim to enhance the Basel II Framework by ensuring that the risks inherent in banks' portfolios relating to trading activities, securitisations and exposures to off-balance sheet vehicles are better reflected in minimum capital requirements, risk management practices and accompanying public disclosures. APRA has consulted with industry on these measures. The changes to APRA's prudential standards include:

  • higher capital requirements to capture the credit risk of complex trading activities and the introduction of a stressed value-at-risk (VaR) requirement;
  • higher risk-weights for so-called 'resecuritisation' exposures to better reflect the risk inherent in these products, and increased credit conversion factors for short-term liquidity facilities provided to off-balance sheet conduits;
  • requirements in relation to valuation practices and the capture of off-balance sheet and securitisation activities; and
    increased disclosure requirements for securitisations and off-balance sheet exposures.

APRA is also implementing a number of other amendments to its prudential standards on capital to clarify existing provisions and support the implementation of the Basel II enhancements.

The enhancements to the Basel II Framework are expected to have only a limited impact on ADIs, which largely avoided higher‑risk trading activities during the global financial crisis.

The amended prudential standards, PPGs and reporting forms will come into effect on 1 January 2012.

The package of changes 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.