November 27, 2018

APRA is consulting on revisions to the prudential standard on capital adequacy (APS 110) and on the new reporting standard on leverage ratio (ARS 110.1). APS 110, the draft amended standard on capital adequacy, outlines the revised leverage ratio requirements. The comment period for the consultations ends on February 22, 2019. In addition, APRA released its response to submissions on the introduction of a leverage ratio requirement for authorized deposit-taking institutions. APRA is also proposing that revisions to the capital framework, which were initially outlined in February 2018, will come into effect from January 01, 2022, which is the internationally agreed implementation date set by BCBS. APRA had originally proposed an implementation date of January 01, 2021; however, it is now proposing to revise this date based on industry concerns about the business impact of moving ahead of international competitors.

APRA had released proposals in February 2018 to incorporate a minimum leverage ratio within the prudential framework for authorized deposit-taking institutions. Most submissions broadly supported the introduction of a minimum leverage ratio, but raised concerns about the calibration of the minimum requirement and calculation methodology. In response, APRA has proposed to implement the following:

  • Set the minimum requirement for authorized deposit-taking institutions using the internal ratings-based approach (IRB ADIs) to determining capital adequacy at 3.5%, rather than 4.0%
  • Keep the leverage ratio for authorized deposit-taking institutions that use the standardized approach to determine capital adequacy (standardized ADIs) at 3%
  • Allow standardized ADIs to use Australian accounting standards, rather than the more complex Basel III methodology, to calculate certain parts of the ratio
  • Require IRB ADIs to largely follow the Basel III methodology to calculate their leverage ratios

Small authorized deposit-taking institutions that qualify for the simplified prudential framework—which is intended to introduce more proportionate and tailored prudential requirements for smaller and less complex authorized deposit-taking institutions—will be exempt from the leverage ratio requirements; however, these small institutions will still be required to report to APRA under ARS 110.1. Although still consulting on its final design, APRA is considering an eligibility threshold for the simplified framework of USD 15 billion in total assets, which will be complemented by other qualitative measures.


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Comment Due Date: February 22, 2019

Effective Date: January 01, 2022

Keywords: Asia Pacific, Australia, Banking, Reporting, Leverage Ratio, Basel III, Capital Adequacy, Proportionality, APS 110, ARS 110.1, APRA

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