The Basel Committee yesterday announced that new capital and liquidity rules for banks would be phased in so that banks could meet the standards through "reasonable earnings retention and capital raising".
According to a report in
The Australian today Reserve Bank governor Glenn Stevens and Australia Prudential Regulation Authority chairman John Laker were successful in persuading the Basel Committee that Australian banks receive an exemption from the requirement that they keep enough government bonds on hand to meet 30 days of cash withdrawals. There are not enough government bonds to go round.
The report says the new leverage ratio, requiring banks to keep a minimum level of capital against total assets, has been set at three per cent. The traditional approach is to set aside capital against risk-weighted assets.
The new leverage ratio will be phased in slowly, with full implementation in 2017.
There also have been concessions on the definition of tier-one capital, allowing banks to have up to 10 per cent composed of investments in minorities, and deferred tax assets.
Another concession is the postponement of a new stable income ratio, which would have required banks to achieve a closer matching of the term to maturity of their assets and liabilities. This will not now be introduced until 2018, with further work done before a final proposal is announced. Australian banks, with a large proportion of their assets in mortgages and their liabilities in wholesale funding, would have struggled to reach the required ratio.