As widely expected, the Australian Prudential Regulation Authority (APRA) has announced our big banks will need to raise their average risk weights on Australian residential mortgage exposures from approximately 16 per cent to at least 25 per cent, but still shy of the 35 per cent required by our smaller banks. The affected banks have until the 1st July 2016 to get their ‘houses’ in order.
This will require our banks to raise billions in new capital. ANZ told AAP they would need to raise $2.3 billion, Westpac would need another $3 billion.
The Financial System Inquiry had recommended average risk rates for IRB banks be increased to between 25 and 30 per cent.
The move to strengthen our banking system comes as our internal ratings-based (IRB) institutions, Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), Macquarie Bank, National Australia Bank (NAB) and Westpac Banking Corporation (WBC) were found flouting their privilege in calculating their own risk ratings, putting super profits ahead of stability with the knowledge that naive taxpayers will be on hand to bail out these “too big to fail” banks. (‘Australian banks not the safest in the world – far from it.‘)
APRA indicates this is an “interim measure” and further tightening of risk ratings and enhanced capital adequacy requirements can be expected once the Basel Committee releases a review of it’s international framework towards the end of the year.
» APRA increases capital adequacy requirements for residential mortgage exposures under the internal ratings-based approach – 20th July 2015
» APRA’s home loan rule changes could push up rates by 0.65pc: analyst – The ABC, 21st July 2015.
» Have the Big 4 just flunked APRA’s stress test? – Who crashed the economy?, 16th November 2014.