Banks on track to meet zero CLF deadline

John Kavanagh

Banks are close to half-way to meeting an APRA directive to reduce their Committed Liquidity Facility allocations to zero, which they must do by the end of the year.

The regulator issued a note yesterday saying CLF allocations have fallen from A$102 billion in January to around $66 billion now.

APRA announced last September that authorised deposit-taking institutions subject to the liquidity coverage ratio rule would have to cut their use of the CLF to zero by the end of 2022. 

Under a prudential rule introduced in 2015, ADIs must maintain an adequate level of high-quality liquid assets that can be converted into cash to meet liquidity needs for 30 days. To determine the appropriate LCR, banks must estimate their net cash outflow over 30 days under stressed conditions, with higher runoff rates to apply to less stable deposits. 

An issue for banks at the time was that the stock of high-quality liquid assets (cash, government and semi-government bonds) was not sufficient to meet their needs. To fill the shortfall, the Reserve Bank established the CLF, allowing ADIs to enter into repurchase agreements of eligible securities outside the RBA's normal market operations.

In September, APRA said that it and the Reserve Bank had determined that, with the significant increase in government and semi-government bond issuance in the past year, there were sufficient high quality liquid assets for ADIs to meet their LCR requirements without the need for the CLF.

Westpac reported yesterday that in response to the phasing out of the CLF it increased its holdings in HQLA from $148.6 billion at the end of September last year to $161.9 billion at the end of March.

The increase in low-yielding liquid assets contributed 8 basis points to the fall in the bank’s net interest margin in the March half-year.