Australia’s banking watchdog will stick with its timetable to implement new liquidity rules and won’t widen the range of permissible assets, declining to follow global peers who have softened their stance.
The Australian Prudential Regulation Authority will impose the so-called liquidity coverage ratio starting Jan. 1, 2015, the regulator said today after concluding a review. The list of high-quality liquid assets that banks can hold to meet the requirements remains unchanged, APRA said.
The stance contrasts with global central bank chiefs, who in January agreed to loosen the rules after warnings that the proposal would strangle lending and stifle the economic recovery. Australian banks didn’t require bailouts during the global financial crisis, which drove financial institutions to raise $1.6 trillion of capital and spurred the Basel Committee on Banking Supervision to revamp global rules.
The nation’s lenders are “well-placed to meet the new liquidity requirements on the original timetable and doing so will send a strong message about the soundness of the Australian banking system,” APRA Chairman John Laker said in an e-mailed statement.
The rule requires banks to hold easy-to-sell assets to survive a 30-day credit squeeze. Under the deal struck in January, global banks will only have to meet 60 percent of the LCR obligations by 2015, with the full rule phased in through 2019. Those lenders may also use assets including some equities and securitized mortgage debt to meet the requirements.
While banks in most countries will meet the LCR predominantly through holding government bonds, Australia’s A$271 billion ($279 billion) sovereign debt market isn’t big enough to meet the requirements. The central bank is providing a standby funding facility to help lenders meet the gap.
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