The Australian Prudential Regulation Authority (APRA) proposed revisions to APG 120, the prudential practice guide that aims to assist authorized deposit-taking institutions in the management of liquidity risk. APRA intends to revise the guidance for self-securitized assets to de-link it from the Committed Liquidity Facility (CLF). The comment period on this proposal ends on August 20, 2021, with APRA expecting to release an updated version of APG 210 in late 2021.
As a response to the COVID-19 stress, in March 2020, APRA communicated to authorized deposit-taking institutions with existing self-securitized assets that it expected these assets to be temporarily increased to facilitate extraordinary liquidity support, if required. Self-securitized assets were subsequently used to support drawings under the Reserve Bank of Australia’s (RBA) Term Funding Facility and to support increases in CLF. APRA considers it is prudent for an institution to maintain contingent liquidity reserves for use, if required, at short notice. APRA recognizes self-securitized assets that are in excess of those used as collateral for the CLF as a form of contingent liquidity and notes the risk that these assets may not be increased in a timely manner in a future stress due to operational issues and/or insufficient eligible loans. Given this risk, APG 210 states that for an institution with a CLF with the RBA, APRA expects that the level of the institution's self-securitized assets would be well in excess of that used as collateral for the CLF. While the CLF has decreased materially, APRA maintains its view that it is prudent for an institution to hold contingent liquidity reserves regardless of the size and presence of the CLF. Thus, based on the analysis and experience of the liquidity impact through the early stages of COVID-19, APRA deems it prudent for an institution to maintain surplus self-securitized assets amounting to at least 30% of the Liquidity Coverage Ratio (LCR) Net Cash Outflows. APRA would expect the self-securitized assets to be unencumbered and not held as collateral for any other purpose.
Comment Due Date: August 20, 2021
Keywords: Asia Pacific, Australia, Banking, APG 210, APS 210, Liquidity Risk, LCR, COVID-19, Self-Securitized Assets, Committed Liquidity Facility, APRA
Previous ArticleUS Agencies Propose Guidance for Managing Third-Party Risks
Next ArticleBoE and PRA Publish Annual Reports for 2020-21
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.