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

    EC Publishes Regulations Supplementing Investment Firms Directive

    The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034).

    December 07, 2021 WebPage Regulatory News

    FSB Report Examines Trends in Non-Bank Intermediation in Americas

    The Financial Stability Board (FSB) published a report that presents results of the sixth non-bank financial intermediation monitoring exercise in the Americas.

    December 06, 2021 WebPage Regulatory News

    BIS Discusses Regulatory Approach for Non-Bank Intermediation

    The Bank for International Settlements (BIS) published the December issue of the Quarterly Review, which analyzes the non-bank financial intermediation mechanisms that could undermine financial stability.

    December 06, 2021 WebPage Regulatory News

    BoE Calls for Vendor Input for Data Collection Transformation Program

    The Bank of England (BoE) opened the Alternative Liquidity Facility, or ALF, for deposits from the participating UK-based Islamic banks for the first time.

    December 03, 2021 WebPage Regulatory News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News

    EBA Proposes Standards on Interest Rate Risk in the Banking Book

    The European Banking Authority (EBA) launched three consultations on technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions, with the comment period ending on April 04, 2022.

    December 02, 2021 WebPage Regulatory News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News

    EBA Sets Out List of Banks for Mandatory Basel III Monitoring Exercise

    The European Banking Authority (EBA) published the sample of banks for the mandatory Basel III monitoring exercise, which will refer to the December 2021 data.

    December 01, 2021 WebPage Regulatory News

    FED Revises Complex Institution Liquidity Monitoring Report for Banks

    The Board of Governors of the Federal Reserve System (FED) is adopting a proposal to revise and extend for three years the Complex Institution Liquidity Monitoring Report (FR 2052a) for banks.

    December 01, 2021 WebPage Regulatory News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7758