Australia’s banking regulator is introducing higher financial stability hurdles for the four major lenders, as part of a global effort to ensure big banks can withstand economic shocks.
The Australian Prudential Regulation Authority has announced it will force the banks to increase the amount of cash they hold in reserve as a buffer against financial crises.
It says the changes come amid the growing belief among Governments that tax payers should not be required to bailout banks in the event of another global financial crisis.
APRA will increase the capital reserve requirement by 1 per cent, potentially forcing the banks to hold billions of dollars more in financial assets deemed safe by global financial regulators.
The rules will be introduced in January 2016, and apply to the Commonwealth Bank, ANZ, Westpac, and the National Australia Bank.
APRA has identified the four lenders as “domestic systemically important banks” that carry potential risk for the economy, as part of its implementation of an international protocol established by Basel Committee on Banking Supervision.
“The Basel Committee’s framework responds to the strongly held view of the G20 Leaders, including Australia, that no financial firm should be “too-big-to-fail” and that taxpayers should not bear the cost of resolution,” APRA said in a statement.
“The framework also emphasises that other policy tools, such as more intensive supervision, can play an important role in dealing with domestic systemically important banks.”
Australia’s biggest domestic investment bank, Macquarie Bank, will not be subject to the requirements.
Banks respond to new rules
In a statement to the share market, ANZ says its capital reserves are already in excess of APRA’s requirements.
“Over time and through organic capital generation, ANZ may modestly increase its capital buffers from current levels,” it said.
Westpac says it well placed to meet the requirements.
“Following these announced changes Westpac will review its preferred capital levels noting that there is potential for the additional capital conservation buffer to substitute, in part, for existing management buffers,” it said in a statement.
“This review will take place over 2014.”
The Commonwealth bank also says its current capital position is above APRA’s requirements.
NAB says it has a strong capital position and expects to able to meet the new requirements.
Shares in all the major banks lifted after the announcement.
At 2:30pm (AEDT), shares in the Commonwealth Bank and Westpac shares were up by 0.7 per, NAB was 0.5 per cent higher, and ANZ was flat.