Australian banking regulator is planning to direct lenders to adjust their capital holding domestically to offset their exposure to foreign subsidiaries.
The move comes after the Reserve Bank of New Zealand (RBNZ) unveiled plans to increase capital ratio for financial industry.
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The decision is expected to particularly affect the four major Australian banks, which owns New Zealand’s four largest lenders.
To address these concerns, the Australian Prudential Regulation Authority (APRA) initiated a review of the capital treatment of the banks’ investments in their subsidiaries.
It seeks to revise Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111), that details bank’s regulatory capital requirements.
If implemented, the amendments will increase the equity amount required to support investments in large subsidiaries. Alongside, it will reduce the investment required for small subsidiaries.
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By GlobalDataAccording to APRA, no additional capital will be required at an aggregate industry level due to these proposed changes. However, individual banks may need to adjust their capital, based on the level of their exposures to subsidiaries.
APRA deputy chair John Lonsdale said: “These proposed measures seek to support the resilience of the major banks’ Australian operations.
“In relation to New Zealand, there are a number of options available to the banks. If they decide to fund any higher capital requirements by retaining local profits, they are unlikely to require additional capital domestically.
“Both APRA and the RBNZ will continue to maintain an open dialogue as we work to strengthen the resilience of our respective financial systems and protect the interests of depositors in each country.”
The proposed changes are open for consultation till 31 January next year. The revised regulations are expected to be effective from 1 January 2021.
