Several Australian banks – including the big four – may soon face a tough new challenge after the prudential regulator outlined plans to target their reliance on short-term wholesale funding.
APRA last week released for consultation a discussion paper outlining its proposed implementation of the Net Stable Funding Ratio (NSFR).
The regulator has proposed that the new standard would come into effect from 1 January 2018, consistent with the international timetable agreed by the Basel Committee on Banking Supervision (BCBS).
The discussion paper also proposes options for the future operation of a liquid assets requirement for foreign bank branches in Australia.
APRA originally consulted on proposals for the introduction of the NSFR in 2011, but subsequently placed further consultation on hold pending finalisation of the NSFR by the BCBS, which released details of its final NSFR standard in October 2014.
“APRA’s objective in implementing the NSFR in Australia, in combination with the Liquidity Coverage Ratio (LCR) implemented in 2015, is to strengthen the resilience of ADIs,” the regulator said in a statement.
“The NSFR encourages ADIs to fund their activities with more stable sources of funding on an ongoing basis and thereby promotes greater balance sheet resilience.
“In particular, the NSFR should lead to reduced reliance on less-stable sources of funding – such as short-term wholesale funding – that proved problematic during the global financial crisis.”
As with the earlier introduction of the LCR, APRA is proposing that the NSFR will only be applied to larger, more complex ADIs.
The regulator said that there is “limited value” in applying the new standard to smaller banks with balance sheets that comprise predominantly mortgage lending portfolios funded by retail deposits, as they are likely to have stable funding well in excess of NSFR's requirements.
“ADIs have increased the amount of funding from more stable funding sources over the past seven years or so, reflecting an important lesson from the financial crisis as to the need for greater liquidity and funding resilience,” APRA chairman Wayne Byres said.
“The NSFR will serve to reinforce and maintain those improvements in ADI funding profiles. It will also be an important consideration, in addition to capital strength, when determining how to implement the Financial System Inquiry’s recommendation regarding ‘unquestionably strong’ ADIs,” Mr Byres said.
APRA is currently proposing that 15 ADIs be subject to the NSFR. They are: AMP Bank, Arab Bank, Australia and New Zealand Banking Group, Bendigo and Adelaide Bank, Bank of China, Bank of Queensland, Citigroup, Commonwealth Bank of Australia, HSBC Bank, ING Bank, Macquarie Bank, National Australia Bank, Rabobank Australia, Suncorp-Metway and Westpac Banking Corporation.
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