Basel 3 planning under way

While much of the recent talk on bank rules centres on Basel 3, Bendigo and Adelaide Bank have pushed on with their effort to progress through the ranks set in place under Basel 2.

Treated as a super-sized credit union by APRA for the last three years, one aim of Bendigo's management is to follow rules on capital, and disclosure, that apply in Australia to larger and complex banks.

Only five make the APRA grade for "advanced" status: the four majors plus Macquarie.

Bendigo has plans to join this club, or at least file the same sort of paperwork as the market leaders.

Advanced status will allow Bendigo to cut the capital used up in its home loan business and free the bank to invest in other areas of its business.

Bendigo said its tier one ratio under the standard approach was 11.2 per cent at June 2010. Under the advanced approach this ratio would be 13.6 per cent.

Achieving capital efficiency from this shift in regulatory treatment is worth pursuing from the bank's point of view. Whether APRA will be accommodating is less certain.

Bendigo may have much more work ahead to achieve readiness, and there was talk by management at yesterday's management briefing of the need to engage more consultants. With project work and perhaps dual reporting for a year after that, any serious improvement in capital use must be a couple of years off yet.