The international Basel III agreement on bank capital has been finalised, with APRA confident that Australia’s largest banks will meet the new rules by the 1 January 2022 start date.
The Basel Committee’s 2010 response to the global financial crisis, known as Basel III, has been finalised following a long negotiation between the world’s regulators and the banking industry.
The reforms will increase the amount (and quality) of capital banks will require to hold as well as implement changes to risk-weighted assets and leverage ratios.
Basel III will see the introduction of a “floor” to limit the reduction in capital requirements available to banks using capital models.
APRA chairman Wayne Byres, who was involved in the discussions that have led to the final Basel III reforms, welcomed the announcement and said that Australia’s banks are “well equipped” to accommodate the final framework.
“Importantly for Australian ADIs, these final Basel III reforms will be accommodated within the targets APRA set in July this year in our assessment of the quantum and timing of capital increases for Australian ADIs to achieve unquestionably strong capital ratios,” Mr Byres said.
APRA reiterated that it expects Australian authorised deposit-taking institutions to follow strategies to increase their capital ratios to “unquestionably strong” levels by 1 January 2022.
“[APRA’s] 2018 consultation will be based on the final Basel III framework but with appropriate adjustments to reflect APRA’s approach and Australian conditions, most notably adjustments to capital requirements for higher risk residential mortgage lending, consistent with the achievement of unquestionably strong capital ratios,” the regulator said in a statement.
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