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Basel consultation to begin soon

Monday 12 February 2018

The Australian Prudential Regulation Authority (APRA) is set to begin consultation soon with regards to the 2022 implementation of Basel III.

Speaking at the Australian Economic Forum in Sydney last week, APRA Chair Wayne Byres said, in addition to tackling bank capital, APRA was also turning its attentions to housing and culture.

“Our initial public release will include indicative risk weights,” said Byres, “but these will be subject to further analyses and an impact study to calibrate the final proposed risk weights and ensure we end up with a capital requirement that is consistent with our assessment of unquestionably strong capital levels.”

Byres added they also had some ‘recent input’ from the Productivity Commission (PC) that they will consider as they go through the consultation process.

The Basel Committee has agreed to implementation timeline for a release in 2022, with ‘further phase-ins after that’.

“We expect banks to be planning to increase their capital strength to exceed the ‘unquestionably strong’ benchmarks by the beginning of 2020,” Byres said.

“As has been the case elsewhere, what has become more apparent and pronounced over the past year is that—despite their financial health and profitability—community faith in financial institutions in Australia has been eroded due to too many incidences of poor behaviour and poor customer outcomes. None of these have thus far threatened the viability of any institution, but they have certainly not been without commercial and reputational damage,” Byres said.

With their inquiry into CBA, as well as the Royal Commission into banking being led by Commissioner Kenneth Hayne, the ‘big four’ banks are on notice to confront their internal culture issues—especially in light of how negative culture has been shown to impact upon how well an organisation meets mandatory regulatory requirements.
APRA has endeavoured to play its part in helping with the challenge of improving both culture and governance within organisations.

“We can’t regulate these into existence, but we have been working to ensure Australian financial institutions have been giving greater attention to these matters than may have traditionally been the case,” Byres said. “On these issues, it’s fair to say the journey continues.”