APRA released aggregate results on the Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated deposit-taking institutions that are subject to the liquidity coverage ratio (LCR). All locally incorporated LCR authorized deposit-taking institutions were invited to apply for a CLF amount, which is to take effect on January 01, 2020. All fifteen authorized deposit-taking institutions chose to apply. Following the assessment of applications by APRA, the aggregate net cash outflow of the fifteen institutions was estimated at approximately AUD 378 billion.
The total CLF amount allocated for 2020 (including an allowance for buffers over the minimum 100% requirement) is approximately AUD 23 billion. APRA and the RBA, in December 2010, had announced that authorized deposit-taking institutions subject to the LCR will be able to establish a CLF with the RBA. The CLF is intended to be sufficient in size to compensate for the lack of sufficient high-quality liquid assets, or HQLA, (mainly Australian government securities and securities issued by the borrowing authorities of the states and territories) in Australia for authorized deposit taking institutions to meet their LCR requirements. The authorized deposit-taking institutions are required to make every reasonable effort to manage their liquidity risk through their own balance sheet management before applying for a CLF for LCR purposes.
The CLF is required due to the low level of government debt in Australia. This limits the amount of high-quality liquid assets that financial institutions can reasonably hold as a buffer against periods of liquidity stress. Under the CLF, the Reserve Bank commits to providing a set amount of liquidity to institutions, subject to them satisfying several conditions. These include having paid a fee on the committed amount. So far, no financial institution has needed to draw on the CLF in response to a period of financial stress. The CLF has been in operation for five years and continues to be required, given the still relatively low level of government debt in Australia.
The LCR is part of the Basel III package of measures to strengthen the global banking system. The LCR is a minimum requirement that aims to ensure that authorized deposit-taking institutions maintain sufficient unencumbered high-quality liquid assets to survive a severe liquidity stress scenario lasting for 30 calendar days. APRA implemented the LCR on January 01, 2015.
Related Link: CLF Update (PDF)
Keywords: Asia Pacific, Australia, Banking, Committed Liquidity Facility, LCR, Basel III, HQLA, Liquidity Risk, APRA
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