Apra to set capital requirement for banks

Australian regulator takes control of Basel requirements

The Australian Prudential Regulation Authority (Apra) has released another discussion paper on its proposed approach to the supervisory review process under Basel II.

Under proposals outlined in the document, Apra would set a prudential capital requirement (PCR) for each authorised deposit-taking institution (ADI), which must be met at all times. Subject to the minimum capital requirement of 8% established in the Basel II framework, PCRs would be set at a level proportional to each ADI’s overall risk profile.

Apra also intends to apply a limit on reductions in regulatory capital for ADIs accredited to use the advanced Basel II approaches, relative to what would have applied had the current Basel Accord continued in force. The proposed limit would be 10% in 2008 and could be retained in 2009, pending a review of experience with the advanced Basel II approaches.

The discussion paper is the fourth Basel II consultation released by the regulator in the past two months and follows last week’s proposals that would see firms providing Apra with internal loss data.

The Basel II framework will come into force in Australia on January 1, 2008.