Australian Prudential Regulation Authority ditches long-awaited ‘unquestionably strong’ bank capital requirements

APRA tells lenders to cash in excess capital buffers to keep credit flowing and access a $90bn central bank lending facility.

The banking regulator has thrown out its long-awaited “unquestionably strong” capital requirements, telling lenders to cash in excess capital buffers to keep credit flowing and to access a new $90bn central bank lending facility.

The Australian Prudential Regulation Authority on Wednesday told the banking sector it would “not be concerned” if the lenders don’t meet its capital buffer rules, which were first proposed by David Murray in his 2014 Financial System Inquiry and adopted by the regulator in 2016.

As the coronavirus pandemic tears through the financial system, APRA chairman Wayne Byres said allowing banks to draw down on the additional capital buffer headroom built up following the new rules, which have seen tier 1 capital ratios grow to 11.3 per cent, above the 10.5 per cent minimum, was putting the crisis buffers to work as they should.

“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this,” Mr Byres said.

“Today’s announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements,” he said.

APRA’s move followed an announcement the Reserve Bank would launch a $90bn short-term lending facility for banks to use in order to keep credit flowing for small and medium business borrowers.

The RBA’s Term Funding Facility can be accessed on a three-year basis at a tiny 0.25 per cent rate.

APRA said that “given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy” and that this was “especially the case for banks wishing to take advantage of new facilities announced today by the Reserve Bank of Australia” to kick-start the flow of credit.

“Provided banks are able to demonstrate they can continue to meet their various minimum capital requirements, APRA would not be concerned if they were not meeting the additional benchmarks announced in 2016 during the period of disruption caused by COVID-19.”

It’s the latest move to reduce the regulatory burden on the financial sector in recent weeks.

Australia’s top financial watchdogs could consider delaying “regulatory initiatives” to give the banking sector breathing space to keep the economy functioning and would take a lighter touch when enforcing the law as COVID-19 continues to disrupt business operations.

Earlier in the week, both the corporate watchdog and the prudential regulator said they will “where warranted” provide relief of waivers from regulatory requirements”, including laws tied to secondary capital raising, annual general meetings and audits.

In New Zealand, Australia’s big four banks earlier this week were given a reprieve from $20bn worth of tough new capital rules by the Reserve Bank of New Zealand, which is hoping to free up the lenders to inject up to $NZ50bn worth of extra loans into the economy to offset the impact of the coronavirus.