APRA targets bank resilience with new liquidity changes


The Australian Prudential Regulation Authority (APRA) is making strides to fortify the banking sector against future stress.

In a recent development, APRA has initiated a consultation on specific changes to liquidity and capital requirements. This initiative follows the banking crises witnessed in the United States and Europe earlier this year, emphasizing the need for robust banking frameworks.

APRA’s proposals, detailed in a letter to authorised deposit-taking institutions (ADIs), are primarily focused on improving how banks manage their liquidity. The amendments will significantly affect banks operating under the Minimum Liquidity Holdings (MLH) regime, in contrast to the more intricate Liquidity Coverage Ratio (LCR), predominantly used by larger banks.

Therese McCarthy Hockey, an APRA Member, underscored the importance of these revisions. “This year’s banking turmoil overseas highlighted the threat that can arise when banks don’t regularly update the value of their liquid assets; it also reinforced the importance of minimising contagion risks,” she explained. McCarthy Hockey further emphasized that the goal of these revisions is to prevent stress in one bank from disproportionately affecting the entire system, ensuring that liquid assets are appraised prudently and that banks are prepared to access central bank liquidity when necessary.

McCarthy Hockey also acknowledged the potential impact of these proposals on smaller banks, including financial implications. She assured that APRA would consider options to mitigate these impacts during the consultation process.

In its pursuit of comprehensive feedback, APRA plans to conduct a series of workshops along with accepting written submissions during the consultation period. The finalisation of this consultation is expected in the first half of next year.

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