Australia's banking regulator is maintaining its tough stance on rules designed to make banks safer during times of financial stress, resisting industry pressure to delay forthcoming liquidity reforms.
To protect the world economy from financial shocks, global authorities will force banks to hold larger amounts of easy-to-sell assets such as top-rated government bonds.
In a win for European and US banks, the global banking regulatory body softened the proposal significantly in January. It delayed the reforms' commencement until 2019 and widened the pool of eligible assets to include higher-returning bonds and some shares. But the Australian Prudential Regulation Authority, which decides how global rules are implemented, will not be adopting the softer approach flagged overseas, sticking with its starting date of 2015.
The key question facing banks is how APRA will assess their claim to a taxpayer-funded lending facility that will help them meet the rules, thought to be worth more than $100 billion. Overseas lenders had been granted a reprieve because they were under financial stress, APRA said on Monday, but these pressures did not apply in Australia.
"These arrangements were introduced in light of the considerable stress facing banking systems in some regions. Australia, however, is not one of those regions," APRA said in a discussion paper.
It comes after a round of bumper bank profits from ANZ and Westpac last week, with both lenders raising their dividend after recording higher-than-expected earnings.
While APRA is known for its conservatism, some bankers had expected the regulator to grant the banks some concessions after the backdown by overseas authorities earlier this year. The price of state government bonds rose after the announcement, reflecting some expectation of a softer approach.
The director of industry policy and strategy at the Australian Bankers Association, Tony Burke, questioned the benefit of APRA pushing ahead with its plan to implement the rules in 2015.
"We just cannot see the advantage of being out in the front," Mr Burke said. "What do we get from this as a country? It's just not clear."
However, APRA said it would improve banks' resilience, noting the International Monetary Fund's concern that Australian banks were highly exposed to swings on global markets because of their reliance on wholesale funding markets.
Under the liquidity rules, banks must hold enough easy-to-sell assets to cover their lending outflows for a month - what APRA calls a "significantly severe liquidity stress scenario".
To address a shortage of government bonds, the Reserve Bank will offer banks a liquidity facility giving them access to funds at 0.25 percentage points more than the cash rate. APRA will determine how much each bank can access the facility, which has attracted criticism for the cheap price of funding it will charge banks.
Some lenders will be able to include shares in these holdings, but APRA said it did not think that treating equities as eligible assets would make the financial system any safer.
Banks had warned that implementing the reforms ahead of other countries could place Australian lenders at a disadvantage.