APRA said the announcement confirms the final set of measures designed to address deficiencies in the internationally-agreed capital framework following the global financial crisis and are primarily focused on addressing undue variability in risk-weighted assets, and therefore capital requirements, across banks.
Key elements of the final framework include changes to the standardised approach to credit risk capital for real estate, restrictions on modelled risk estimates by banks using the internal ratings-based (IRB) approach to credit risk capital, and the removal of provisions for banks to use internal models to determine their operational risk capital requirements.
The Basel Committee has also agreed to introduce a 'floor' to limit the reduction in capital requirements available to banks using capital models relative to those using the standardised approaches.
APRA chairman Wayne Byres said APRA's ADI capital framework, including the adjustments made to IRB risk weights in 2016, is well-equipped to accommodate the final Basel III framework.
“We welcome the finalisation of these measures which represent the final stage of a decade’s financial reform work aimed at building resilience in the financial system following the global financial crisis,” Mr Byres said.
“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.
The Basel Committee has agreed to an implementation timetable commencing in 2022 for the final Basel III reforms. APRA will consider the appropriate effective date for revisions to the ADI prudential standards in light of the Basel Committee’s announcement and expects to commence consultation on revisions to the ADI capital framework in early 2018.
However, consistent with its July 2017 announcement, APRA reaffirms its expectation that ADIs should be following strategies to increase their capital strength to exceed the unquestionably strong benchmarks by 1 January 2020.
The 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.