APRA announced a $35 billion reduction in the aggregate amount in the Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR), from the amount at the start of 2020. Due to material improvements in the funding and liquidity of authorized deposit-taking institutions, along with the substantial high-quality liquid assets (HQLA) increases due to unforeseen increases in government debt since the January 2020 CLF allocations, all locally incorporated LCR-authorized deposit-taking institutions were invited to apply for a reduction in their CLF, effective on or before December 31, 2020. Five authorized deposit-taking institutions applied for a reduction, thus reducing the aggregate CLF allocated to authorized deposit-taking institutions from $223 billion at January 01, 2020 to $188 billion.
The amount of Australian Government Securities (ASIC) and Semi-Government securities issued by the State and Territory governments (AUD HQLA) increased significantly and is projected to increase further based on the government’s recent budget announcement. As a result, APRA CLF allocations for 2021 will 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, which are targeted to be effective from December 01, applications for the 2021 CLF are due to be submitted to APRA in December 2020. APRA will endeavor to announce the aggregate results of those applications by the end of first quarter of 2021.
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 a 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 (AGS and semis). Authorized deposit-taking institutions are required to make every reasonable effort to manage their liquidity risk through their own balance sheet management before applying for a CLF.
Keywords: Asia Pacific, Australia, Banking, Committed Liquidity Facility, CLF, LCR, HQLA, Liquidity Risk, Basel, RBA, APRA
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