Australian bankers are still telling Australian Prudential Regulation Authority chair John Laker that the local industry should not have to bear the full weight of global banking re-regulation because of the good outcomes achieved here during the financial crisis.Speaking at the Finsia financial services conference in Sydney yesterday, Laker said it was time for this debate to end. "The Australian banking system cannot operate in isolation," he said."Our largest banking institutions are global citizens. It is entirely appropriate that they at least meet minimum global capital standards."Laker said the Basel III reforms were "substantial but not draconian". They would pose challenges for banks in a number of countries but not Australian-approved deposit-taking institutions, which are accustomed to demanding capital requirements.The G20 will meet in Seoul in November to finalise financial sector reform. Basel III will include higher capital requirements for certain assets, changes to the composition of allowable regulatory capital, higher minimum capital requirements, the introduction of a conservation buffer, and a counter-cyclical buffer, and a leverage ratio. Laker said: "Our banking institutions have acknowledged that their relative success in negotiating the global financial crisis has been due, in part, to APRA's regulatory framework and close supervisory oversight. One of the major features of our regulatory framework is our more conservative approach to the definition and composition of capital compared with many of our counterparts."Surely, we are not being encouraged to relax this conservatism just after our approach has been vindicated through the crisis?  Pursuit of the lowest common denominator has never been an objective for APRA."There is no scope for national discretion to fall short of the proposed minimum global capital standard."Laker said there were three areas where APRA's current requirements were less onerous than the new standards and would need to be tightened. They are the criteria for the inclusion of instruments in Tier 1 and Tier 2 capital, the treatment of deductions from capital and the treatment of minority interests. He said APRA would consider whether there were valid reasons to change policy in three areas where its current requirements were more onerous than those Basel III proposes: the recognition of certain additional reserves; the treatment of deferred tax assets; and the treatment of equity interests in non-consolidated financial institutions.Deferred tax assets are deducted because such assets rely on the future profitability of the banking institution to be realised and are not available to absorb losses on a "gone concern basis". Investments in non-consolidated financial institutions are deducted so as to avoid double counting of capital in the financial system.Laker said: "Given these long-standing arrangements, APRA will need to be convinced to depart from principle simply to align its capital requirements with one or other country that may choose to recognise these items."On the question of the liquidity ratio, which Australian banks will not be able to meet because of a shortage of government and highly rated corporate bonds, Laker said that once the details of the standard were released, in December, APRA would outline how it