On Jul. 24, 2024, AST APRA released a response paper regarding the consultation above, confirming plans to proceed as planned with 2 of the 3 proposed reforms.
Namely, banks subject to MLH regime for calculating their liquidity requirements will be required to adjust value of their liquid assets regularly for movements in market prices; and all banks must be operationally ready to provide certain key information.
Specifically, regarding their financial position when requesting ELA from AST CB.
AST APRA explained that these two measures will come into effect from Jul. 1, 2025.
However, it will defer consideration of a proposal to phase-out bank debt securities as liquid assets for MLH banks until its planned broader review of liquidity risk, which is due to commence 2025; this approach will allow more holistic review of MLH regime.
AST APRA expects MLH banks to take steps to improve the diversification of their liquidity portfolios in line with AST APRA’s existing requirements as well as guidance.
This should be reflected in banks’ usual annual review of liquid assets under APS 210.
These annual reviews must be provided to APRA when approved by board, no later than Jul. 1, 2025; banks with material concentrations of bank debt securities should expect heightened supervisory attention per APRA’s existing supervisory framework.
AST APRA Member Therese McCarthy Hockey said APRA had sought to get appropriate balance between financial safety and other considerations i.e. competition, efficiency.
In Dec. 2024, AST APRA proposed to revise capital adequacy reporting, see #236139.
AST APRA issued a letter to all ADIs on proposed targeted changes to liquidity as well as capital requirements, aimed at strengthening the sector’s resilience to future stress.
In addition, AST APRA published the material listed below in relation to the same.
Follows AST APRA Nov. 2023 spoke re financial system risks at conference, #190322.
Material Published
It published draft Prudential standard APS 111 capital adequacy: measurement of capital (APS 111), as well as draft Prudential standard APS 210 liquidity (APS 210).
Each draft shows respective proposed amendments (in mark-up) to APS 210, APS 211.
In addition, AST APRA published draft Prudential practice guide APG 210 - liquidity; and Exceptional liquidity assistance data request template (excel file format).
Draft guide includes proposed amendments i.e. insertion of section on exceptional liquidity assistance (ELA); template includes form completion, submission instructions.
Fields to be completed include shareholders' equity; ratios; changes in shareholders' equity; total amount of ELA requested; term of ELA requested; and intended collateral.
Overview of Proposal
Proposal reflects lessons learned from bank crisis events in US and Europe in 2023.
Proposed a series of changes to the prudential framework chiefly targeting the below.
Specifically, how banks manage their liquidity; said the changes would primarily impact banks that are subject to the minimum liquidity holdings (MLH) regime, rather than the more complex liquidity coverage ratio (LCR) mainly used by larger banks.
AST APRA said 2023's banking turmoil overseas highlighted the threat that can arise.
Namely, when banks do not regularly update the value of their liquid assets.
It also reinforced the importance of minimizing contagion risks; AST APRA aims to ensure that stress at one bank does not have an outsized impact on the system.
In addition, that liquid assets are prudently valued, as well as that banks are adequately prepared to access central bank liquidity where necessary to do so.
AST APRA recognizes the impact these proposals may have on some smaller banks, i.e. financially; will carefully consider options to mitigate this as part of this consult.
Next Steps
Letter states in addition to seeking written submissions, it will engage with industry via workshops in consult, to gather further data on potential cost and funding impacts.
It will use these workshops to discuss options that would balance risk, cost impacts.
Intends to finalize consult in H1 2024, before planned effective date of Jan. 1, 2025.
While this consult is targeted at lessons learned from recent international events, AST APRA plans to undertake a more comprehensive review of APS 210 in due course.
In addition, AST APRA explained that this will seek to address feedback gathered through the 2022 post-implementation review of Basel III liquidity reforms, #130756.
Consultation End
The comment period for this consultation closes on Feb. 16, 2024.
Jul. 2024 AST APRA Response and Finalization
On Jul. 24, 2024, AST APRA released a response paper regarding the consultation above, confirming plans to proceed as planned with 2 of the 3 proposed reforms.
Namely, banks subject to MLH regime for calculating their liquidity requirements will be required to adjust value of their liquid assets regularly for movements in market prices; and all banks must be operationally ready to provide certain key information.
Specifically, regarding their financial position when requesting ELA from AST CB.
AST APRA explained that these two measures will come into effect from Jul. 1, 2025.
However, it will defer consideration of a proposal to phase-out bank debt securities as liquid assets for MLH banks until its planned broader review of liquidity risk, which is due to commence 2025; this approach will allow more holistic review of MLH regime.
AST APRA expects MLH banks to take steps to improve the diversification of their liquidity portfolios in line with AST APRA’s existing requirements as well as guidance.
This should be reflected in banks’ usual annual review of liquid assets under APS 210.
These annual reviews must be provided to APRA when approved by board, no later than Jul. 1, 2025; banks with material concentrations of bank debt securities should expect heightened supervisory attention per APRA’s existing supervisory framework.
AST APRA Member Therese McCarthy Hockey said APRA had sought to get appropriate balance between financial safety and other considerations i.e. competition, efficiency.
In Dec. 2024, AST APRA proposed to revise capital adequacy reporting, see #236139.
