Australian banks below global median on capital

The contest over how to measure the sufficiency of bank capital and whether present levels are adequate for banks in Australia got a kick along yesterday, courtesy of the banking regulator, APRA.

At the end of June 2014, the weighted average tier one leverage ratio for the Australian major banks was 4.5 per cent, the Australian Prudential Regulation Authority observed in a capital comparison study.

"This places them just below the median of the distribution," in a mix of mainly globally active banks, APRA said.

The Australian industry's leverage ratio has improved a smidgin over the three years covered by the study.

APRA's observations may make harsh reading for a sector long-wedded to a self-proclaimed superiority in capital ratios.

"Based on the findings of this study, positioning the weighted average CET1 ratio of the Australian major banks at the bottom of the fourth quartile would require an increase of around 70 basis points in CET1 capital ratios," APRA said.

"To simultaneously achieve a position in the fourth quartile for all four measures of capital adequacy, the increase in the capital ratios of the major banks would need to be significantly larger," APRA concluded, albeit with the coda "that there are more substantial caveats on the ability to measure the relative positioning of Australian banks using measures other than CET1."