Banks pick their capital ratios, says Laker

APRA chair John Laker rejected arguments that the prudential regulator was pushing the capital ratios of banks higher and argued that banks had done so for their own reasons, which were mainly to satisfy the demands of their debt investors and credit ratings agencies.

At an "estimates" hearing of the Senate's economics committee on Tuesday evening Laker debated the topic with Senator Matthias Corman who questioned the "speed … and higher costs" associated with the Australian Prudential Regulation Authority's timetable for adopting the Basel III capital rules in Australia.

'The important point … is that the Australian deposit-taking institutions have already passed the 2013 target," Laker said in the Hansard account of the hearing.

"The banks raised capital of their own volition during the crisis. They were not required by APRA to raise capital.

"They are holding higher capital because they wanted to maintain their credit ratings from the major rating agencies, which they have done. They are one of four banks out of now, I think, only 20 that have a AA rating.

"We were not pushing capital requirements up. We are simply endorsing the fact that they have already passed the first gate. They have passed it."

Laker did, however, acknowledge that APRA's version of the Basel III rules would lift capital ratios for banks, at least over and above the level that would apply under the standard version.

'The impost coming from APRA on top of the Basel III reforms … is roughly about one percentage point on capital. We think that that ensures the Australian community and the Australian depositors that when we talk about capital in Australian banks, it is real capital.

"It will be there when a bank is under stress. It will not evaporate because of an accounting."