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APRA releases final Basel III liquidity reforms

Friday 20 December 2013


The Australian Prudential Regulation Authority (APRA) today released its final position on implementation of the main elements of the Basel III liquidity reforms for authorised deposit-taking institutions (ADIs) in Australia.

This position is provided in a response to submissions paper, which sets out the main issues raised in submissions on APRA’s discussion paper released in May 2013. Accompanying the response paper is Prudential Standard APS 210 Liquidity and Prudential Practice Guide APG 210 Liquidity, which come into force on 1 January 2014.

The Basel III liquidity reforms involve two new quantitative measures ― a 30-day Liquidity Coverage Ratio (LCR) to address an acute stress scenario and a Net Stable Funding Ratio (NSFR) to encourage longer-term funding resilience. These requirements will apply to the larger, more complex ADIs.

The LCR will become effective from 1 January 2015. The Basel Committee on Banking Supervision (Basel Committee) has yet to finalise the rules text for the NSFR; once it has done so, APRA will consult on the implementation of this measure in Australia. The NSFR will become effective from 1 January 2018.

APRA has previously noted that the Basel III quantitative measures will not apply to smaller ADIs that are currently subject to the simple liquidity ratio requirement, the minimum liquidity holdings (MLH) regime.

Enhanced qualitative requirements for liquidity risk management, reflecting the Basel Committee’s Principles for Sound Liquidity Risk Management and Supervision (2008), will apply to all ADIs. These include requirements for enhanced Board oversight of an ADI’s liquidity risk management framework, articulation of the Board’s tolerance for liquidity risk, quantification and allocation of liquidity costs and benefits, and other matters.

APRA Chairman Dr John Laker said that APRA’s new prudential standard for liquidity was a significant step in enhancing the resilience of the Australian banking system, and it will reinforce the improvements in ADI liquidity risk management practices APRA has observed in the wake of the global financial crisis.

‘Large, more complex ADIs are well positioned to meet the LCR from day one. APRA’s implementation of the LCR sends a strong message to the global community about the relative strength of the Australian banking system.’

The response to submissions paper, Prudential Standard APS 210 Liquidity and Prudential Practice Guide APG 210 Liquidity can be found on the APRA 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.