The Australian Prudential Regulation Authority and Australian banks may be measuring the capital needed to support investment property loans in the wrong manner, leading to an overstatement of banks' capital ratios.John Watson of Margate Financial Research Solutions and Graham Andersen of Morgij Analytics, in their study of bank capital, point out that the March 2014 review by the Basel Committee on Banking Supervision of Australia's conformity to global banking rules makes adverse findings on this point."One component where Australia has been assessed as largely compliant relates to the IRB approach for credit risk," they wrote. "In particular, the BCBS rated APRA's approach to residential mortgage exposures eligible for retail treatment under the IRB approach as a potentially 'material deviation', as APRA does not include an owner-occupancy constraint. "The likely potential risk for capital understatement that could result from APRA's current treatment of non-owner occupied mortgages was considered material. "On this basis, the BCBS views this deviation as a potentially material negative effect on capital requirements."