In the interests of international consistency, APRA proposes to
adopt the minimum Basel III capital requirements in full except
where there are strong in-principle reasons for continuing
APRA's current policies. This approach will require APRA to
take a stricter approach than at present in some areas but a less
conservative approach in others. Perhaps the most significant
deviation from the Basel III requirements is APRA's proposal to
adopt an accelerated timetable for the introduction of Basel III.
This and other matters raised in APRA's discussion paper are
to adopt the Basel III minimum capital requirements and
definitions of capital. Although the Basel III timetable allows for
the new minimum capital requirements to be phased-in over a period
of two years from 1 January 2013, APRA believes Australian
authorised deposit-taking institutions (ADIs)
should be able to meet the new capital requirements straight away.
Accordingly, APRA proposes that all ADIs will be required to meet
the following minimum requirements from 1 January 2013:
4.5% Common Equity Tier 1 ratio (increased from 2% under Basel
6.0% Tier 1 capital ratio (increased from 4% under Basel II);
8.0% total capital ratio (which remains the same as under Basel
to adopt the stricter Basel III eligibility criteria for Tier 1
and Tier 2 capital instruments. Capital instruments that fail to
satisfy the new eligibility criteria will be progressively
de-recognised for regulatory capital purposes in accordance with
the Basel III timetable.
to follow the regulatory capital adjustments set out in Basel
III except in certain circumstances where it believes a more
conservative approach is appropriate. For example, APRA has
indicated that it will continue to require capital expenses and
capitalised transaction costs to be deducted from capital. APRA has
also indicated it will take a stricter approach to removing the
double counting of capital in the financial system and on
investment in commercial institutions.
to introduce a capital conservation buffer in line with Basel
III, which will require ADIs to hold an additional 2.5% of Common
Equity Tier 1. This means that ADIs will be required to hold a
minimum 7% of Common Equity Tier 1. The Basel III timetable allows
for the capital conservation buffer to be phased-in from 1 January
2016 and become fully effective on 1 January 2019. However, APRA is
of the view that ADIs should be able to meet the minimum Common
Equity Tier 1 ratio of 7% by 1 January 2016.
to introduce a countercyclical buffer in line with Basel III.
APRA will indicate in 2015 whether any countercyclical buffer will
apply from 1 January 2016 and whether any phasing-in of that buffer
to introduce the leverage ratio set out in Basel III which will
apply from 1 January 2018 in accordance with the Basel III
Consultation with industry
APRA has invited written submissions on its proposals by 2
December 2011 with a view to issuing draft prudential standards and
reporting requirements for consultation in early 2012.
If you are interested in commenting on the discussion paper and
you would like our assistance please contact Louise McCoach or Andrew Jinks.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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