By Alison Bell
Banks may be required to hold more capital on their balance sheets if the prudential regulator's proposed new rules covering complex trading activities and securitisations are introduced.
The Australian Prudential Regulation Authority (APRA) released a new discussion paper on Monday seeking industry comment on the proposed new rules for the banks' trading activities, securitisations and exposures to off-balance sheet vehicles.
APRA's move comes after it wrote to banks and other authorised deposit-taking institutions on Friday saying it will delay introducing new rules for liquidity by 12 months to move in step with changes introduced by the global prudential regulator, the Basel Committee on Banking Supervision (BCBS).
APRA on Monday proposed changes that would require banks to hold a higher level of capital because of the greater credit risk of complex trading activities, and apply higher risk weightings to exposure to resecuritisation to better reflect their inherent risk.
Resecuritisation exposures included instruments such as asset-backed commercial paper conduit arrangements, APRA said in its discussion paper.
APRA is also advocating increased credit conversion factors for short-term liquidity facilities provided to off-balance sheet conduits.
The latest discussion paper is a response to measures released in July 2009 by the BCBS, to strengthen regulatory capital and improve risk management practices by banks.
The liquidity changes aim to safeguard the financial system in line with proposed global standard to ensure local banks could withstand a mild bank run and continue to roll over maturing wholesale debt.
APRA proposes banks hold more capital and high-quality liquid assets, which it says will add five basis points to standard variable rates on home loans after the liquidity rules are finalised in 2011.
Local banks and analysts say the cost of complying with the proposed liquidity rules will result in banks passing on interest rate hikes to borrowers of between four and 35 basis points.
Separately, outgoing ANZ Banking Group chairman Charles Goode on Friday called for a global move to standard derivative contracts that could be traded on a well-capitalised clearing house.
That market had proven opaque regarding counter-party risk and "highly dangerous" to the stability of the financial system, he said.