Bail-ins to be deployed beyond G-SIBs, says Byres
The banking industry can expect to see bail-in rules applied more widely than to globally systemically important banks, the country's chief financial regulator has warned.Making his first speech since taking over as the chairman of the Australian Prudential Regulation Authority, Wayne Byres, told a forum of chief risk officers in Sydney yesterday that "some jurisdictions are likely to extend the requirement for loss absorbing capacity beyond G-SIBs, meaning it could become a broad standard."Byres said the Basel Committee's and the Financial Stability Board's work on proposals for systemically important banks to have an additional layer of loss absorbing capacity in addition to their higher regulatory capital was still a work in progress."It is difficult to put into practice. In a crisis, bail-in of the creditors of one bank may lead to a run on other banks as their creditors seek to avoid a similar bail-in," Byres said.He said there were several other items of work in progress in the regulatory area."Much more remains to be done to implement the Financial Stability Board's Key Attributes of Effective Resolution Regimes, which sets out the critical components of an effective regime for dealing with failing banks."Byres said this was another key part of the effort to tackle too-big-to-fail.He said the role of internal models was under review."Banks now face substantially higher minimum capital requirements and must hold higher quality capital to meet these requirements. But these efforts are being undermined somewhat by an increasing lack of faith in the use of internal models by the largest banks to calculate risk-weighted assets."Recent studies by the Basel Committee found excessive levels of variability in bank calculations of RWA for identical portfolios."The Basel Committee has said there is a problems and something must be done about it. The future of internal models is the regulatory framework is somewhat in the balance."APRA's preference is to find ways to strengthen the current risk-based regime. Unless investors have faith in risk-based capital ratios they do not serve their regulatory purpose."