Featured Product

    APRA Proposes Revisions to Risk-based Capital Framework for Banks

    February 14, 2018

    APRA published a consultation revising the capital framework for authorized deposit-taking institutions, the comments for which are due by May 18, 2018. APRA also published a consultation on the implementation of leverage ratio requirements for authorized deposit-taking institutions, the comments for which are due by April 27, 2018. APRA intends for the leverage ratio requirement and proposed changes to the calculation of the leverage ratio to commence from July 01, 2019. The papers include proposed revisions to the capital framework, resulting from finalization of Basel III reforms by BCBS in December 2017.

    Revisions to the capital framework for authorized deposit-taking institutions. This paper outlines the main components of the revisions APRA expects to make to the risk-based capital requirements for authorized deposit-taking institutions using the advanced and standardized approaches to credit, market, and operational risks. Meanwhile, APRA will undertake further analysis (including a quantitative impact study) of the impact of the proposed changes on authorized deposit-taking institutions. The outlined proposals are as follows:

    • Additional constraints on the use of authorized deposit-taking institutions’ own risk-parameter estimates under the internal ratings-based (IRB) approach to determining capital requirements for credit risk
    • The treatment of exposures to small- to medium-size enterprises, including those secured by residential property, under the standardized and IRB approaches to credit risk
    • Other changes to regulatory capital requirements for commercial property exposures and retail exposures (other than those secured by residential property) and to credit conversion factors applying to off-balance sheet exposures
    • The operational risk capital framework, including the replacement methodology for the advanced measurement and standardized approaches
    • Timeline of APRA for implementing the Basel Committee’s revised market risk framework
    • The treatment of interest rate risk in the banking book
    • Proposal for a simpler capital framework for small authorized deposit-taking institutions, which is intended to reduce regulatory burden without compromising prudential soundness

    Later this year, APRA also plans to release a paper on potential adjustments to the overall design of the capital framework to improve transparency, international comparability, and flexibility. APRA expects to release draft revised prudential standards on the standardized and IRB approaches to credit risk and operational risk later in 2018. Other draft prudential standards incorporating the remaining Basel III revisions will be released for consultation in mid-2019. APRA continues to propose an implementation date of January 01, 2021 for all revised measures, including the full risk-weighted asset floor, but invites feedback on the merits of aligning with the Basel Committee timetable and deferring implementation until January 01, 2022. 

    Paper on leverage ratio requirements for authorized deposit-taking institutions. This paper contains APRA proposals for applying a minimum leverage ratio requirement for authorized deposit-taking institutions. Consistent with the Basel III framework, APRA proposes that the leverage ratio of an authorized deposit-taking institution be expressed as the ratio of tier 1 capital to total exposures, largely based on financial accounting measures. In calibrating the leverage ratio, APRA intends to apply a differential minimum leverage ratio requirement for authorized deposit-taking institutions that use the standardized approach and those that use the IRB approach to determine capital adequacy. As IRB institutions tend to have more complex balance sheets, with a greater proportion of off-balance sheet exposures and a greater reliance on modeled risk estimates in their risk-based capital measures, their leverage is inherently more difficult to measure. For this reason, APRA is proposing a minimum leverage ratio of 4% for IRB institutions and 3% for standardized authorized deposit-taking institutions.

     

    Related Links

    Comment Due Date: April 27, 2018 (leverage ratio rules) and May 18, 2018 (capital framework revisions)

    Effective Date: July 01, 2019 (leverage ratio rules)

    Keywords: Asia Pacific, Australia, Banking, Basel III, Capital Framework, Leverage Ratio Requirements, IRB Approach, Credit Risk, Proportionality, APRA

    Featured Experts
    Related Articles
    News

    PRA Amends Pillar 2 Capital Framework for Banks

    PRA published the policy statement PS2/20 that contains the final amendments to the Pillar 2 framework and provides feedback to responses to the consultation paper CP5/19 on updates related to Pillar 2 capital framework.

    January 23, 2020 WebPage Regulatory News
    News

    FED Proposes to Revise Information Collection Under Market Risk Rule

    FED proposed to revise and extend, for three years, FR 4201, which is the information collection under the market risk capital rule.

    January 22, 2020 WebPage Regulatory News
    News

    MAS Amends Notices on Minimum Liquid Asset Requirements for Banks

    MAS published amendments to Notices 1015, 613, and 649 related to the minimum liquid assets (MLA) requirements.

    January 21, 2020 WebPage Regulatory News
    News

    APRA Publishes Submission on Fintech and Regtech

    APRA published its submission, to the Senate Select Committee, on financial technology and regulatory technology.

    January 21, 2020 WebPage Regulatory News
    News

    ECB Consults on Guideline on Threshold for Credit Obligations Past Due

    ECB published a draft guideline, along with the frequently asked questions (FAQs), on the definition of the materiality threshold for credit obligations past due for less significant institutions.

    January 20, 2020 WebPage Regulatory News
    News

    BIS Discusses Role of Central Banks in Addressing Climate Change Risks

    BIS published a book that reviews ways of addressing the climate change risks within the financial stability mandate of central banks.

    January 19, 2020 WebPage Regulatory News
    News

    FSB Report Examines Global Nonbank Financial Intermediation Activity

    FSB published the ninth annual report examining the global non-bank financial intermediation activity.

    January 19, 2020 WebPage Regulatory News
    News

    OSFI Publishes Instruction Guide on Solvency Information Return

    OSFI published an instruction guide to assist administrators of pension plans in completing the Solvency Information Return that is required to be filed with OSFI.

    January 17, 2020 WebPage Regulatory News
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4515