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    APRA Further Reduces CLF, Releases Feedback Template for ARS 220

    January 07, 2021

    APRA announced a reduction of AUD 46 billion in the aggregate amount in the Committed Liquidity Facility (CLF) of banks. Considering the improvements in funding and liquidity and the substantial high-quality liquid assets (HQLA) increases, all locally incorporated authorized deposit-taking institutions that are subject to Liquidity Coverage Ratio (LCR) were invited to apply for a reduction in their CLF. Further to last round of reduction, which was effective from December 01, 2020, seven authorized deposit-taking institutions applied for a reduction, thus reducing their allocated aggregate CLF from AUD 188 billion to AUD 142 billion, effective on or before February 01, 2021. APRA also released an optional template to provide structured feedback on the draft Reporting Standard ARS 220.0 on credit risk management.

    The amount of Australian Government Securities and Semi-Government securities issued by the State and Territory governments (AUD HQLA) has increased significantly and is projected to increase further. As a result, APRA CLF allocations will likely decrease further. While APRA expects to ensure measured CLF reductions to avoid financial market disruptions, it would be reasonable to expect that if government securities outstanding continue to increase beyond 2021, the CLF may no longer be required in the foreseeable future. Further to this round of reductions, the applications for 2021 CLFs will be assessed in early 2021 for implementation on April 01, 2021. APRA expects further reduction to CLFs at this time. APRA will endeavor to announce the aggregate results of those applications by the end of first quarter of 2021.

    The CLF was established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to LCR. The LCR is a minimum requirement that aims to ensure that authorized deposit-taking institutions maintain sufficient unencumbered HQLA to survive a severe liquidity stress scenario lasting for 30 calendar days. The LCR is part of the Basel III package of measures to strengthen the global banking system. The CLF is intended to be sufficient in size to compensate for the lack of sufficient available HQLA, which in Australia consists of mainly Australian Government Securities and securities issued by the borrowing authorities of the states and territories.

     

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    Keywords: Asia Pacific, Australia, Banking, Committed Liquidity Facility, CLF, LCR, HQLA, Liquidity Risk, RBA, Basel, Credit Risk, ARS 220, APRA

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