Australia: Regulator consults on strengthening capital protection for bank depositors
The Australian Prudential Regulation Authority (APRA) has launched a review of the capital treatment of authorised deposit-taking institutions’ (ADIs’) investments in their banking and insurance subsidiaries.
To ensure deposit holders continue to be protected where the major banks hold significant investments in subsidiaries, APRA is proposing changes to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111). APS 111 establishes the criteria for ADIs’ regulatory capital requirements.
APRA’s approach was in part shaped by the Reserve Bank of New Zealand (RBNZ) proposal for New Zealand’s banks to materially lift their regulatory capital. The RBNZ proposal would impact Australia’s major banks, which are the owners of New Zealand’s four largest banks.
APRA proposals include:
- increasing the capital ADIs must hold to offset concentrated exposures to foreign or domestic banking or insurance subsidiaries; and
- reducing the capital ADIs must hold to offset smaller exposures to their banking or insurance subsidiaries.
The proposals also cover:
- incorporating into the prudential standard various rulings and technical information APRA has published since APS 111 was last substantially updated in 2013; and
- aligning APS 111 with updated guidance from the Basel Committee on Banking Supervision.
The consultation closes on January 31, 2020. The updated prudential standard is expected to come into force on January 1, 2021.