The Australian Prudential Regulation Authority (APRA) on 24 July 2024 finalised two targeted changes to its liquidity standard, APS 210, which will take effect on 1 July 2025. APRA said the changes respond to lessons from the banking crisis in the United States and Europe in March 2023, and will leave the affected banks better placed to withstand the kind of liquidity shortfalls that led several overseas banks to fail or require rescue.
The regulator is proceeding with two of the three changes it had proposed. It received 35 submissions during a three-month consultation and held additional workshops with industry, given the potential impact on smaller banks.
THE TWO CHANGES
Under the first change, banks subject to the minimum liquidity holdings (MLH) regime will be required to adjust the value of their liquid assets regularly for movements in market prices.
The second change requires all authorised deposit-taking institutions to be operationally ready to provide key information when requesting exceptional liquidity assistance from the Reserve Bank of Australia.
DIVERSIFICATION PROPOSAL DEFERRED
APRA deferred a proposal to phase out bank debt securities, including bank bills, certificates of deposit and debt securities issued by other banks, as eligible liquid assets for MLH banks. The proposal will instead be considered as part of a broader review of liquidity risk that APRA plans to begin in 2025.
In the meantime, APRA said it expects MLH banks to improve the diversification of their liquidity portfolios in line with existing requirements and guidance. Their annual liquid asset reviews under APS 210, approved by their boards, are to be provided to APRA by 1 July 2025, and banks with material concentrations of bank debt securities will face heightened supervisory attention.
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