The chairman of the Australian Prudential Regulation Authority, Wayne Byres, put the banking industry on notice yesterday that its work on making authorised deposit-taking institutions "unquestionably strong" would involve more than requiring them to hold plenty of capital. Speaking at a Finsia conference in Sydney yesterday, Byres said another area of focus was funding, or more particularly the Australian banking system's high dependence on offshore funding.And he warned that ADIs might struggle to meet requirements in this area.Byres said: "Taking steps to ensure that, even during times of stress, foreign creditors will be more likely to maintain confidence in the viability and creditworthiness of Australian ADIs was an important part of the rationale for the Financial System Inquiry's recommendation for ADI capital to be made unquestionably strong."In such circumstances strengthening capital ratios certainly makes sense. But it should not be the only solution we employ."The Liquidity Coverage Ratio, introduced this year, and the Net Stable Funding Ratio, to be introduced in 2018, are also "significant" additions to the regulatory framework.Byres has spoken on this topic before. At an Actuaries Institute conference in September he said the successful introduction of the LCR had achieved several things: it shifted the measure of liquidity from a one-week test to a one-month test; it eliminated the practice of banks holdings other banks' debts as assets; and it established the Reserve Bank's Committed Liquidity Facility.However, he said banks could have difficulty meeting the Net Stable Funding Ratio requirements, which are designed to guard against excessive funding to long-term illiquid assets with short-term unstable funding.He said: "While the industry has reduced its reliance on short-term funding, wholesale funding and offshore funding, it has not materially reduced its reliance on the form of funding that is most likely and able to run in a crisis - short-term wholesale funding from offshore."That might seem paradoxical but as a percentage of total funding, short-term wholesale offshore funding is virtually unchanged from a decade ago."Byres said APRA would begin consultation on the NSFR in the near future "Given their funding structures, the largest Australian banks do not easily meet the new Net Stable Funding Ratio standard and, as things stand today, international comparisons are not favourable to them."Some further lengthening of Australian bank maturity profiles is therefore likely to be needed."Other areas APRA will be working on over the coming year include standards for total loss-absorbing capacity and powers for dealing with failing institutions.