APRA Announces Revisions to Capital Framework for Banks
The Australian Prudential Regulation Authority (APRA) is announced revisions to the capital framework for authorized deposit-taking institutions to implement the "unquestionably strong" capital ratios and the Basel III reforms. Additionally, APRA is initiating a consultation on consequential amendments, arising from the capital reforms, to the Prudential Standard APS 120 Securitization (APS 120), the Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180), and the Prudential Standard APS 210 Liquidity (APS 210). The consultation period ends on August 26, 2022. APRA also announced removal of the remaining $150 million capital overlay that was applied to Allianz Australia Limited to address the identified risk governance weaknesses.
APRA released the final prudential practice guides that accompany the final capital adequacy and credit risk capital requirements for authorized deposit-taking institutions. The prudential practice guides provide guidance on sound practice for authorized deposit-taking institutions in implementing the revised standards, including the use of capital buffers and the determination of credit risk capital requirements under the new framework.
Alongside the final practice guides, it is releasing an updated version of APS 113, the prudential standard titled Capital Adequacy: Internal Ratings-based Approach to Credit Risk, with minor amendments resulting from the consultation on the guidance. APRA is also releasing a response paper to the submissions paper that provides a more detailed response to technical issues raised in the November 2021 consultation on the draft prudential practice guides. The paper initiates a consultation on consequential amendments (arising from capital reforms) to certain other relevant prudential standards and outlines the next steps for implementation of the revised capital standards, including the use of temporary data proxies. The new capital framework aims to strengthen the financial resilience of the banking industry by embedding the industry’s unquestionably strong levels of capital, with higher capital buffers providing greater flexibility for periods of stress. The prudential practice guides include APG 110 on capital adequacy, APG 112 on the standardized approach to credit risk, and APS 113 on the internal ratings-based approach to credit risk.
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Keywords: Asia Pacific, Australia, Banking, Guidance, Basel, Regulatory Capital, APS 113, Credit Risk, APG 110, APG 112, APG 113, Standardized Approach, IRB Approach, Allianz Australia Limited, APRA
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