APRA unveils regulatory approach to RBA funding facility

The Australian Prudential Regulation Authority (APRA) has confirmed its regulatory approach to the Reserve Bank of Australia’s (RBA) term funding facility (TFF), which is aimed at supporting the flow of credit to small and medium-sized businesses.

On 19 March, the RBA announced a $90-billion term funding facility (TFF) for the banking system, which will provide authorised deposit-taking institutions (ADIs) with three-year funding facilities at a fixed rate of 0.25 per cent.

Under the TFF, ADIs will be able to obtain initial funding of up to 3 per cent of their existing outstanding credit and will have access to additional funding if they increase lending to business, particularly small and medium-sized businesses (SMEs).

The RBA established the TFF to reinforce the benefits to the economy of a lower cash rate and encourage authorised deposit-taking institutions (ADIs) to support businesses over the period ahead.

According to APRA, a “core component” of the TFF is the “RBA’s commitment to make funding available” to ADIs equivalent to 3 per cent of the ADI’s total credit outstanding to Australian residential households and (non-related) businesses, what APRA has referred to as the “initial allowance”.

As such, APRA stated that it will allow ADIs to include the benefit of the initial allowance in the calculation of the liquidity coverage ratio, minimum liquidity holdings ratio and net stable funding ratio from 31 March 2020, “to the extent they have the necessary unencumbered collateral to access the facility”. 

APRA also said it will provide further details to ADIs once the RBA has finalised its operational requirements for the TFF.

[Related: Westpac launches new low-cost SME offering]