Featured Product

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    October 15, 2019

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions. This proposal is part of the review of the capital treatment of authorized deposit-taking institutions’ investments in their banking and insurance subsidiaries. The review was initiated to update the relevant prudential standard and ensure that the appropriate capital treatment is applied to investments in subsidiaries. APRA intends to finalize changes to APS 111 after the consultation period closes on January 31, 2020. The updated prudential standard is expected to come into force from January 01, 2021. APRA is open to working with impacted authorized deposit-taking institutions on the appropriate transition.

    The review was prompted in part by the recent proposals of RBNZ to materially increase capital requirements in New Zealand. The RBNZ proposal would impact major banks in Australia, which are the owners of the four largest banks in New Zealand. These proposals will in effect increase the amount of equity required to support investments in large subsidiaries while reducing this requirement for small subsidiaries. The proposal seeks to balance the benefits of revenue diversification that banks can achieve by owning subsidiary operations against the potential concentration risk that arises as these investments increase in size. 

    APS 111 sets out the characteristics that an instrument must have to qualify as regulatory capital for an authorized deposit-taking institution and the various regulatory adjustments to be made to determine the total regulatory capital on both a Level 1 and Level 2 basis. In the consultation paper, APRA proposed the following: 

    • Increasing the capital an authorized deposit-taking institution must hold to offset concentrated exposures to foreign or domestic banking or insurance subsidiaries
    • Reducing the capital an authorized deposit-taking institution must hold to offset smaller exposures to banking or insurance subsidiaries
    • Incorporating into the prudential standard various rulings and technical information APRA has published since APS 111 was last substantially updated in 2013
    • Aligning APS 111 with the updated guidance from BCBS

    APRA is not proposing a full dollar-for-dollar capital requirement for an authorized deposit-taking institutions' equity investments in these subsidiaries; this is in recognition of the benefits of subsidiaries that are subject to prudential regulation and considering that ownership of banking and insurance subsidiaries generally provides some beneficial diversification. However, as these exposures increase in size, the concentration risk associated with such investments start to outweigh the diversification benefits. Requiring dollar-for-dollar capital for amounts above the 10% common equity tier 1, or CET1, capital reduces the risks of increasing levels of these exposures, for Australian depositors. 

     

    Related Links

    Comment Due Date: January 31, 2020

    Effective Date: January 01, 2021 (expected)

    Keywords: Asia Pacific, Australia, New Zealand, Banking, Insurance, APS 111, Capital Adequacy, CET 1, RBNZ, APRA

    Featured Experts
    Related Articles
    News

    EC to Defer Application of SFDR Standards Till July 2022

    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.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    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.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    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.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    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.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    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.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    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.

    July 21, 2021 WebPage Regulatory News
    News

    ESMA Responds to Proposal Related to Sustainability Standards Board

    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.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7283