Australia is “not entirely the master of its destiny” when it comes to bank capital ratios, with international developments set to dominate talks between the regulator and industry, according to APRA chairman Wayne Byres.
Speaking at a Finsia Regulators Panel last week, Mr Byres noted that the Financial System Inquiry has tasked the prudential regulator with ensuring Australian banks are ‘unquestionably strong’ by the end of 2016.
The big four banks have raised close to $20 billion in capital this year in order to lift their capital ratios to satisfy APRA – although Mr Byres has indicated that being ‘unquestionably strong’ requires “more than just plenty of capital”.
Mr Byres said international banking regulations will have a major bearing on Australia’s eventual capital ratios, with the Basel Committee set to make a determination in the new year.
“Even if we could quickly agree domestically what an unquestionably strong bank looked like, we are not entirely masters of our own destiny: we must also be mindful of international developments,” he said.
“Settling on a framework that makes sense for Australia, while at the same time continuing to meet international standards, will require a lot of time and attention during the year ahead.
“The task is quite manageable, but will require industry participants to be ready to constructively participate in the debate.”
Mr Byres noted that Australia is fortunate not to be starting from a position of weakness.
“We continue to have a soundly capitalised banking system overall in Australia and, with the aid of recent capital raisings, the relative positioning of the major bank capital ratios against their international peers is much closer to that recommended by the Financial System Inquiry,” he said.
“That means that, given where we are today, APRA and the banking industry have time to manage the transition to any new requirements in an orderly fashion.”