The head of the Reserve Bank believes lenders should speed up their capital accumulation while they still can.
Speaking at the Federal Reserve Bank of San Francisco’s Symposium on Asian Banking and Finance in California on June 10, RBA governor Glen Stevens said that banks must accelerate the accumulation of capital under Basel III between now and 2019.
Mr Stevens questioned the impact of economic growth, or lack of it, to banks' capital positions.
“It is noteworthy in this context that the phase-in for the Basel III capital standards extends until 2019,” Mr Stevens said.
“One has to ask: how likely is it that we will go another five years without an economic downturn of some kind? Even if we do, even if we assume that growth in the United States and Europe extends to the end of this decade, by that stage these expansions would be fairly mature,” he said.
“Given that, one would hope that by 2019 major financial institutions would not only have reached new international minima for capital, but would have risen above them.”
Mr Stevens said he hoped that balance sheets by that time would be at their strongest position for the cycle.
“This is a reason to go faster, rather than slower, in accumulating capital to higher minima, while one can,” he said.
“This point is of some relevance to the discussion in my own country at present.”
Capital requirements have been a point of contention between Australia’s regional banks and the majors.
In a combined submission to the Financial System Inquiry, the regionals identified the regulatory anomalies which provide the major banks with significant funding and capital advantages.
“The submission makes recommendations that would narrow the competitive gap that the majors currently enjoy,” a Bank of Queensland spokesperson said.
“We believe that levelling the playing field would benefit consumers by introducing more competition into the housing lending market and support the small business sector through reallocation of capital,” they said.