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

    APRA Consults to Standardize Submission Date for Quarterly Reporting

    APRA proposed to standardize quarterly reporting due dates for authorized deposit-taking institutions. The proposed standardized due date is 35 calendar days after the last day of the reference quarter, which will create a 14-calendar-day extension for credit unions and building societies.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Methodology and Draft Templates for Stress Tests in 2020

    EBA published a package for the 2020 EU-wide stress test exercise for banks.

    November 07, 2019 WebPage Regulatory News
    News

    EC Publishes Results of Fitness Check of Reporting Requirements in EU

    EC published results of the fitness check of supervisory reporting requirements in financial services legislation in EU.

    November 07, 2019 WebPage Regulatory News
    News

    BCBS Assesses NSFR and LE Rules in Argentina and China as Compliant

    BCBS published reports that assess the implementation of net stable funding ratio (NSFR) and large exposures, or LE, framework in Argentina and China.

    November 07, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of Plenary Meeting in Paris

    At the meeting, the Plenary reviewed vulnerabilities in the global financial system, fintech developments (including developments in the crypto-asset markets), ongoing work of FSB, and the work program for 2020.

    November 07, 2019 WebPage Regulatory News
    News

    HKMA Highlights Technology Initiatives at the Hong Kong FinTech Week

    HKMA co-organized, with InvestHK, the Hong Kong FinTech Week 2019, which was a five-day flagship fintech event that attracted thousands of attendees worldwide.

    November 06, 2019 WebPage Regulatory News
    News

    ECB Report on Fallback Provisions in Contracts Referencing EURIBOR

    ECB published a report, by private sector working group on euro risk-free rates, presenting recommendations for fallback provisions in contracts for cash products and derivative transactions referencing EURIBOR.

    November 06, 2019 WebPage Regulatory News
    News

    EC Regulation on Homogeneity of Underlying Exposures in Securitization

    EC published the Delegated Regulation 2019/1851 regarding the regulatory technical standards on the homogeneity of the underlying exposures in securitization.

    November 06, 2019 WebPage Regulatory News
    News

    FSI Examines Regulatory Approaches on Climate Risk Assessment

    The Financial Stability Institute (FSI) of BIS published a paper that examines the regulatory approaches being used for climate risk assessment in the insurance sector, in particular through enterprise risk management (ERM) frameworks.

    November 06, 2019 WebPage Regulatory News
    News

    SRB Launches Q&A Process for Resolution Reporting

    SRB has setup a dedicated solution for raising questions on the resolution reporting.

    November 06, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4112