APRA names and shames Macquarie, Rabobank and HSBC over reporting standards

Regulators have named and shamed three banks for breaching reporting standards as part a new, more aggressive approach.

APRA chairman Wayne Byres. Picture: John Feder

The banking watchdog has put Macquarie Bank, Rabobank and HSBC Bank on notice for improperly reporting the stability of their funding, showcasing its more aggressive approach to regulation just days after it was slammed for its “culture of conformity”.

The Australian Prudential Regulation Authority yesterday named and shamed the three banks for breaching prudential standards and ordered them to tighten the funding arrangements with their parent companies, while also warning it may impose tougher funding requirements on the lenders.

“These banks had provisions in their funding agreements that would potentially allow the group funding to be withdrawn in a stress scenario, undermining the stability of the Australian bank,” the watchdog said.

As well as strengthening their intra-group funding arrangements, the three banks will have to restate their past funding and liquidity ratios where they were reported incorrectly “to provide transparency to investors and the broader community.” The regulator said it was also considering taking further action, including imposing higher funding and liquidity requirements on the banks.

APRA deputy chair John Lonsdale said the three lenders were “financially sound, with strong liquidity and funding positions in the current stable environment”.

“However, to ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed,” he said.

The rebuke comes just days after the regulator was slammed in a brutal review of its operations by former competition watchdog Graeme Samuel.

Some of the most damning criticisms included that the watchdog lacked courage and was too cosy with the companies it regulates. The report concluded that APRA’s internal culture and regulatory approach needed to change.

In response, APRA chairman Wayne Byres admitted it needed to go “further and faster” to meet increased expectations.

“Strong regulators aren’t always in vogue and we need to seize this opportunity to build an APRA that has the capabilities it needs to be effective in the years ahead, given the increased expectations and the changing environment that we’re grappling with,” he said last week.

Commenting on the naming and shaming, Macquarie Group said it placed surplus funds with Macquarie Bank in the form of intra-group loans. The loans were accounted for in a master loan agreement between the two entities, which included a material adverse change clause.

It was this clause that APRA took issue with because it opened the bank up to risk if the parent company called for the loans to be repaid at an accelerated rate, which would leave the bank short in its requirement to hold enough liquid capital to withstand 30 days of outflows.

It has now removed that clause, the group confirmed.

“Had Macquarie Group and Macquarie Bank been aware of APRA’s interpretation of the material adverse change clause, they would have removed the clause earlier to ensure the funding counted toward Macquarie Bank’s liquidity coverage ratio,” Macquarie said.

When it recalculates its past liquidity coverage ratios, as requested by APRA, they will likely show “a historical non-compliance with APRA liquidity coverage ratio requirements,” Macquarie said.

Rabobank said it was working with the regulator to amend its funding agreement with its parent company to address APRA’s concerns. The Netherlands-based global Rabobank “stood fully behind its ongoing funding commitment to its Australian subsidiary,” Rabobank managing board member Berry Marttin said.

HSBC, meanwhile, said its local operations had maintained a strong liquidity and funding position. “We will continue to comply with our legal and regulatory obligations,” a HSBC spokesperson said.