APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
APRA issued a letter to the authorized deposit-taking institutions announcing a reduction in the aggregate Committed Liquidity Facility from AUD 102 billion on January 01, 2022 to AUD 66 billion on May 01, 2022. The announcement on Committed Liquidity Facility follows the September 2021 communication, according to which APRA expects institutions subject to the Liquidity Coverage Ratio (LCR) requirements to reduce their reliance on the Committed Liquidity Facility to zero by the end of 2022, subject to financial market conditions. APRA expects to provide a further update on the size of the aggregate Committed Liquidity Facility following the scheduled reductions on September 01, 2022 and January 01, 2023. The LCR is a minimum requirement that aims to ensure that authorized deposit-taking institutions maintain sufficient unencumbered high-quality liquid assets (HQLA) to survive a severe liquidity stress scenario lasting for 30 calendar days. The Committed Liquidity Facility, which was established with the Reserve Bank of Australia (RBA) in 2015, is intended to be sufficient in size to compensate for the lack of sufficient HQLA, which in Australia consists of notes and coins, Exchange Settlement Account balances held with the RBA, Australian Government Securities (AGS), and semi-government securities. APRA expects institutions to purchase the HQLA necessary to eliminate the need for the Committed Liquidity Facility.
In addition, APRA issued a letter that sets out its expectations about the operational preparedness for zero and negative market interest rates. APRA announced that the previously advised timeframe of July 31, 2022 for the development of tactical solutions will no longer be relevant. This decision came after a number of deposit institutions, in December 2021, requested for an extension beyond July 31, 2022, citing market conditions and resource pressures due to other priorities. APRA further plans to review its broader strategic approach and will provide an update on its expectations at the appropriate time.
Related Links
- Press Release on Liquidity Facility
- Letter on Liquidity Facility (PDF)
- Liquidity Facility Update, September 2021
- Press Release on Zero and Negative Interest Rates
- Letter on Zero and Negative Interest Rates (PDF)
Keywords: Asia Pacific, Australia, Banking, Committed Liquidity Facility, LCR, Liquidity Risk, Negative Interest Rates, Interest Rate Risk, Basel, APRA
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