Contagion risk cap threatens Aussie banks

Limiting exposures to overseas units to 25% of Tier 1 capital will constrain ANZ’s Kiwi subsidiary

New limits imposed on Australian banks’ exposures to their overseas units could bar ANZ from sending capital to its New Zealand subsidiary.

The Australian Prudential Regulation Authority (Apra) finalised new rules to fight contagion risk – the threat posed by problems in one part of a banking group spilling over to the parent entity – on August 20. As part of the update, the watchdog has capped Aussie banks’ exposures to foreign subsidiaries to 25% of Tier 1 capital, from 50% of total capital

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