APRA has put several ADIs on notice for breaching the prudential liquidity standard including Macquarie and HSBC.
Following a review of funding agreements across the industry APRA has notified Macquarie Bank, Rabobank Australia and HSBC Bank Australia that the reporting of their intra-group funding as stable has been in breach of the prudential liquidity standard.
The decision by APRA to name the banks involved is unusual and potentially due to the recent review that criticised the way the regulator too often operated in secrecy.
The recent APRA review into intra-group funding found that these banks were improperly reporting the stability of the funding they received from other entities within the group with funding provisions that could allow the group funding to be withdrawn in a stress scenario.
APRA found this would undermine the stability of the Australian banks and said it required the banks to strengthen intra-group agreements to ensure term funding cannot be withdrawn in a financial stress scenario.
The regulator is requiring these banks to restate their past funding and liquidity ratios where they have been reported incorrectly to provide transparency to investors and the community.
APRA deputy chair John Lonsdale said the banks were financially sound with strong liquidity in the current environment, but they needed to remain that way.
“To ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed,” he said.
The regulator is still considering further action that could see the banks be hit with higher funding and liquidity requirements.
Macquarie in a statement to the ASX said its intra-group loans to Macquarie Bank Limited (MBL) represented 10-15 per cent of MBL's total funding and it was included in the calculation of its liquidity coverage ratio.
Macquarie confirmed that a clause in the master loan agreement between Macquarie and MBL did mean that repayment of intra-group funding could be accelerated and thereby fall short of the 30 day LCR horizon.
Macquarie has removed the clause to ensure there will be no impact on MBL's LCR calculation going forward and will restart its historical dating.
"It is likely that MBL's recalculated LCRs will show a historical non-compliance with APRA LCR requirements. Had MGL and MBL been aware of APRA's interpretation of the clause, they would have removed it earlier to ensure the funding counter toward MBL's LCR," said Macquarie in a statement.
In a statement to Investor Daily HSBC said it had always maintained a strong position and they would continue to comply with its obligations.
“As APRA has confirmed, HSBC Australia has maintained a strong liquidity and funding position. We will continue to comply with our legal and regulatory obligations,” said a spokesperson.
RaboBank said it was working with APRA to address its concerns and clarified that the bank was in a financially sound position.
“This matter relates to a type of clause contained within the funding agreement with our parent which APRA has recently clarified has implications on the way liquidity coverage ratios are calculated and reported,” he said.
Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms.
Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.
Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).
You can email him on: [email protected]
The COVID crisis has revealed how central banks have amplified wealth inequality in recent years, according to Schroders, with its head of A...