Banks learn the length of their liquidity leash

Fourteen of Australia's largest banks have secured agreement from APRA to make use of the Committed Liquidity Facility from the Reserve Bank of Australia to meet a new Liquidity Coverage Ratio standard from early next year.

The 14 banks requested CLFs worth A$288 billion in total, the Australian Prudential Regulation Authority disclosed yesterday.

After "assessment of the applications", APRA said it granted approval to all 14, but cut the aggregate amount of approvals to approximately $275 billion.

The banks that have a CLF pay a 0.15 per cent annual fee for the committed line, and also pay a borrowing cost 25 bps over the cash rate if they access funds from the CLF.
 
In January, APRA said 35 banks had projected that they would need to tap A$344 billion in committed liquidity from the Reserve Bank.

APRA released a set of interim rules focusing mainly on changes to the way the LCR will be applied to foreign bank branches operating in Australia.
 
The rule subjects foreign bank branches to the same 30-calendar day liquidity requirement that is standard for the local banks complying with the LCR.

However, foreign banks will now only be required to meet a minimum holding of high quality liquid assets of 40 per cent of the calculated cash outflow amount. They will, however, no longer be permitted to hold other forms of additional assets.

Sean Keane of Triple T Consulting, in comment for a Credit Suisse newsletter, said: "effectively this is both an easing and a tightening of liquidity conditions for them."
 
Keane said: "The advantage that the foreign banks gain in being measured against a lower quantum of maximum outflows is partially offset by the fact that the foreign bank branches are still not be eligible to apply for a CLF with the RBA, and that they must hold the same [liquid assets] as the local ADIs. "

APRA noted that it was an interim measure for foreign banks and said it would "more broadly consider the nature and structure of liquid asset requirements to foreign bank branches in 2015".