APRA report says banks need to hold more capital

The financial system inquiry chaired by David Murray called for Australian banks to be “unquestionably strong” with capital ratios in the top quartile of internationally active banks. Australia’s banking regulator, ASIC, has said that this would require banks to hold a further 200bps of common equity tier 1 capital in order to achieve this benchmark, according to its study released on 13 June. However, APRA said that the results of its study “will inform, but will not ultimately determine, APRA’s approach for setting ‘unquestionably strong’ capital adequacy requirements” and that APRA “regards the top quartile positioning as a useful ‘sense check’ of the strength of the Australian framework, but does not intend to tightly tie Australian requirements to a benchmark based on the capital adequacy ratios of international banks”. APRA’s view is likely to be well received by Australia’s banks that have been worried that APRA would enforce a rigid formula for capital requirements that were set by international standards and failed to take into account the strength of the local banking system.