No bank likes the liquidity rules

Westpac management yesterday chimed in with their own reservations on the implications of the revised policy on liquidity proposed by APRA, and which would require much more stringent liquidity buffers and investment of liquid assets in government bonds.

Gail Kelly, managing director of the bank, noted that the bank's holdings of liquid assets leapt from $17 billion at June 2007 to $74 billion at September 2009.

"Obviously what this is going to require is the regulators being very sensible in how they go about implementing some of these new changes, and we'd expect regulators to understand and distinguish between the different jurisdictions, the different starting points of different jurisdictions and different elements of different jurisdictions.

"And certainly we'd expect the regulators to work very closely with the industry in consultation and in transitioning to the new regulatory rules, and I'm certainly hoping that that will actually occur."

Phil Coffey, the bank's chief financial officer, said that "the transitional aspects of this are really important, and the notion that we can operate in Australia with the same liquidity requirements that might be appropriate in the UK or the US seems a difficult one to understand, for no other reason than we don't have sufficient government securities to meet those liquidity requirements.

"It is an important industry-wide issue that needs to be worked through with the government, with our regulators in terms of what's appropriate for Australia.

"Secondly, how do we transition to that in a way that doesn't have the impact you called out, which is that there is the credit crunch created in the country, and I'm sure that neither the regulators nor the government wants to see that happen."