APRA releases response paper on Basel III disclosure requirements

15.09

The Australian Prudential Regulation Authority (APRA) has today released a response to submissions and final versions of Prudential Standard APS 110 Capital Adequacy (APS 110) and Prudential Standard APS 330 Public Disclosure (APS 330), which incorporate new disclosure requirements for authorised deposit-taking institutions (ADIs). These requirements take effect from 1 July 2015.

APRA’s new disclosure requirements are in relation to:

• the leverage ratio;
• the liquidity coverage ratio (LCR); and
• the identification of potential global systemically-important banks (G-SIBs).

These requirements are based on revisions to the Basel Committee on Banking Supervision’s (Basel Committee’s) disclosure framework, which aims to improve the comparability of banking institutions’ risk profiles and facilitate market discipline by providing consistent information about key risk metrics to market participants and other interested parties.

Leverage ratio disclosures

An ADI with approval from APRA to adopt an internal model approach for credit risk under the risk-based capital adequacy framework will in future be required to disclose certain quantitative and qualitative information about its leverage ratio, calculated in accordance with a consistent methodology (as set out in a new Attachment D to Prudential Standard APS 110).

While APRA is requiring select ADIs to disclose their leverage ratio calculated in a consistent manner, any decision to introduce a minimum leverage ratio requirement for Australian ADIs will only take place once the Basel Committee has finalised a minimum international standard, and would be subject to APRA’s normal processes of public consultation.

LCR disclosures

The LCR came into effect from 1 January 2015 as part of APRA’s implementation of its revised liquidity framework. Under the LCR, larger and more complex ‘LCR ADIs’ must demonstrate they are able to withstand a short-term (30 day) severe liquidity stress scenario. APRA is requiring locally incorporated LCR ADIs (i.e. excluding foreign bank branches) to disclose specified information about their LCR, and to provide sufficient qualitative description, to enable market participants to gain a broad picture of their liquidity risk profile.

Disclosures for the identification of potential G-SIBs

Under the international framework for addressing the risks posed by G-SIBs, a large sample of international banks report a set of 12 indicators that the Basel Committee uses to identify those banks that are systemically important on a global scale. The framework also provides for banks above a certain size (currently those with a leverage ratio exposure measure above EUR 200 billion) to disclose these indicators. This disclosure ensures that the framework remains transparent, and that interested parties are able to anticipate when and how the G-SIB requirements, including additional capital requirements, will be applied.

The identification of G-SIBs will be ongoing, and the banks captured by the disclosure requirements will be subject to regular revision. APRA intends to publish the list of ADIs that will be subject to the G-SIB disclosure requirements on its website. Even though they are not identified as G-SIBs, the four largest Australian ADIs — Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited and Westpac Banking Corporation — are currently captured by the size requirement and as such they will be identified as the ADIs required to disclose the 12 indicators used in the G-SIB identification methodology. APRA will not be requiring disclosure in relation to balance dates occurring prior to 1 July 2015.

The two prudential standards released today also incorporate a number of minor amendments to rectify minor deviations from the Basel framework identified during the Basel Committee’s Regulatory Consistency Assessment Programme review of Australia.

During the consultation on the proposed disclosures and minor amendments, the main issues raised in submissions concerned the publication timeframe for the first set of disclosures, frequency of the leverage ratio disclosure requirement and the information to be included in the disclosures about the leverage ratio and the G-SIB framework. Where appropriate, APRA has amended the prudential standards in response to the issues raised.

The response paper and final prudential standards can be found on the APRA website.