MoneyAustralia's banking regulator proposes hiking capital requirements

12:10  08 november  2018
12:10  08 november  2018 Source:   reuters.com

APRA wants big banks to increase capital buffers to improve 'loss-absorbing capacity'

APRA wants big banks to increase capital buffers to improve 'loss-absorbing capacity' APRA has announced a proposal that will require the big Australian banks to further increase their capital buffers. 

A capital requirement (also known as regulatory capital or capital adequacy) is the amount of capital a bank or other financial institution has to hold as required by its financial regulator . This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of

For capital adequacy purposes, Australian banks are required to quantify their credit, market and National and international regulatory bodies have proposed major changes to capital regulations Foreign banks operating in Australia as branches are not required to hold capital in Australia .

Australia's banking regulator proposes hiking capital requirements© Reuters/Reuters Staff FILE PHOTO - A combination of photographs shows people using automated teller machines (ATMs) at Australia's "Big Four" banks

Australia's banking regulator said on Thursday it wanted to further lift banks' capital requirements in order to strengthen the financial system's ability to cope with shocks.

The Australian Prudential Regulation Authority (APRA)proposed lifting total capital requirements for the country's four biggest lenders by four to five percentage points by 2023, in a discussion paper it released on its website.

APRA has already ordered the big banks to boost capital twice since 2015 as it seeks to make the sector impregnable to global shocks.

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The Capital Requirements Regulation (EU) No. 575/2013 is an EU law that aims to decrease the likelihood that banks go insolvent. With the Credit Institutions Directive 2013 the Capital Requirements Regulation 2013 (CRR 2013) reflects Basel III rules on capital measurement and capital standards.

A capital requirement is also known as regulatory capital . In the United States, the capital requirement for banks is based on several factors, but is Global capital requirements have swung higher and lower over the years. Capital requirements tend to increase following a financial crisis or

Australia’s major lenders - Commonwealth Bank of Australia , Westpac Banking Corp , ANZ Banking Group Ltd and National Australia Bank Ltd - hold combined market share of more than 80 percent, raising fears their failure could fatally damage the broader economy.

While not an existential threat, they are under immense pressure at the moment after a sector-wide public inquiry exposed widespread misconduct in the industry.

Billions of dollars have been knocked from the market capitalisation of the banks in the wake of the revelations, as investors price in an anticipated tightening of regulations.

APRA said banks could use any form of capital to meet the higher requirements and that it anticipated most of it would be tier 2 capital. That would marginally increase funding costs, APRA said.

"The aim of these proposals and resolution planning more broadly is to ensure that the failure of a financial institution can be resolved in an orderly fashion," APRA Chairman Wayne Byers said in a statement.

APRA is seeking industry feedback before the proposals are implemented.

(Reporting by Tom Westbrook; editing by Andrew Roche)

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