APRA has revised Prudential Standard APS 111 Capital Adequacy: Measurement of Capital to give credit unions, building societies and mutual banks more flexibility to issue regulatory capital instruments while retaining their structure.
“Recognition of the customer-owned model alongside the listed bank model is important for competition and customer choice,” COBA chief executive Louise Petschler said.
“Australians need a diverse banking market where different business models can thrive.”
“When APRA implemented the Basel III capital changes 16 months ago, customer-owned banking institutions were confronted with a much reduced capacity within the new rules to issue regulatory capital instruments,” she said.
“This was because the rules were designed for large, listed banks and not for customer-owned banking institutions.”
APRA has worked with COBA to resolve this problem and this week’s announcement represents significant progress, Ms Petschler said.
“COBA members are strongly committed to retaining their highly successful customer-focused model but they also need additional capacity to raise capital when needed to grow and take strategic opportunities,” she said.
“Our sector is very strongly capitalised and will always rely on retained earnings as its primary source of regulatory capital.”
While the change provides additional flexibility for capital management, COBA will continue to work with APRA and other regulators on further accommodation of the customer-owned model.
In its submission to the Financial System Inquiry, COBA noted that customer-owned ADIs have considerably less flexibility than they had prior to the Basel III reforms.
Within the submission were the findings of the Deloitte Access Economcs report Competition in Banking, which outlined several competitive disadvantages of denying mutuals access to Common Equity Tier 1 instruments such as RMBSs.
“We want competitive neutrality and a fair go for our model,” Ms Petschler said. “Our submission to the Financial System Inquiry makes the case that diversity in banking is a strength for the financial system and contributes to stability.”