AT1 or hybrid capital will be removed from the bank prudential framework, APRA confirmed yesterday.
APRA yesterdat6 wrote to banks confirming it would “proceed with plans to phase out AT1, while laying out a timeline for transitioning to the updated framework over the next eight years.”
Under APRA’s proposed approach large, internationally active banks will be able to replace 1.5 per cent AT1 with 1.25 per cent Tier 2 and 0.25 per cent Common Equity Tier 1 (CET1) capital.
Smaller banks will be able to fully replace AT1 with Tier 2, with a reduction in Tier 1 requirements.
“By replacing AT1 with forms of capital that are more reliable in a stress situation, Australia’s banks will be even better equipped to respond to a future crisis, minimising the potential need for taxpayer support” John Lonsdale, the APRA chief, said.
“There will be no overall increase in capital requirements for banks, and we expect funding costs under the new framework will be neutral to marginally higher for the five largest banks and slightly lower for all other banks.
“Overall, we believe the benefits of strengthening the bank prudential framework, reducing compliance costs and enhancing proportionality outweigh any associated costs,” Lonsdale said.