More work to be done on risk management, bank watchdog warns
The comments came as the Australian Prudential Regulation Authority told the industry there was "more work to be done" in how it dealt with risk management.
Banks in Europe were granted a major reprieve last month, when global regulators delayed the starting date for new liquidity rules by four years, so that they did not start until 2019.
Local banks are keenly awaiting APRA's decision on whether it will follow the lead of its peers overseas and soften the rules for local banks. A decision is expected in the coming months.
APRA's chairman, John Laker, said on Wednesday that the regulator had not yet put its proposal to industry on the liquidity coverage ratio (LCR), which will require banks to hold enough liquid assets to cover their lending outflows for a month.
However, he also said there were "a number of institutions and banks" that had already satisfied the rules, part of a set of regulations known as Basel III.
Dr Laker added that the rationale of phasing in Basel III "was to ensure the LCR can be introduced without material disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity".
The remarks come after the Australian Bankers Association last month warned there was a danger that domestic regulations would be out of sync with the rest of the world if it proceeded with liquidity rules too quickly. Dr Laker made the comments after saying a recent review had found many boards in the industry needed to lift their game in how they managed risks.
Its December review of risk governance had found the typical board in the industry had received a score that was at the "risky" end of "adequate". Some boards received a "high risk" score.
"This is confirmation that APRA has indeed raised its expectations for risk governance and there is more work to be done," he said.
Despite the need for improvement, Dr Laker said APRA would not adopt certain measures favoured by its UK counterparts, including sitting in on board meetings.
Frequently Asked Questions about this Article…
APRA said there's "more work to be done" on how banks manage risk after a review found many boards scored at the risky end of "adequate" and some scored "high risk." For investors this matters because stronger risk governance and clearer liquidity rules help reduce the chance of disruptions to banks' ability to lend and to the broader financial system.
The liquidity coverage ratio (LCR) is a Basel III requirement that will force banks to hold enough easy-to-sell liquid assets to cover their lending outflows for a month. For Australian banks it means keeping a larger buffer of high-quality liquid assets so they can meet short-term funding pressures without rushing to sell core assets.
APRA's chairman, John Laker, said a number of institutions and banks have already satisfied the rules that form part of Basel III, though APRA has not yet formally put its LCR proposal to industry. Implementation is being phased to avoid material disruption.
Some local banks are waiting to see if APRA will follow overseas regulators after global rules were delayed in Europe, but APRA had not made a decision at the time of the article. APRA is expected to announce its position in the coming months.
The Australian Bankers' Association warned there’s a danger domestic regulations could be out of sync with the rest of the world and that moving too fast could cause implementation difficulties. APRA says phasing is intended to avoid material disruption to the orderly strengthening of banking systems and ongoing financing of economic activity.
APRA's December review of risk governance found many boards were at the risky end of "adequate," with some rated "high risk." APRA said it has raised its expectations for risk governance and that boards need to lift their game in how they manage risk.
No. Dr John Laker said APRA would not adopt certain measures favoured by UK counterparts, including sitting in on board meetings, even though it expects improvements in boards' risk governance.
Investors should monitor APRA announcements about the LCR and Basel III implementation, banks' disclosures on liquidity buffers and risk governance, and any changes to industry guidance. These updates can affect banks' capital and liquidity positions and may influence investment risk and confidence in the sector.
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