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‘Watertight’ funding requirement sees Aussie banks named and shamed
Three Australian banks have been criticised for calling their intra-group funding arrangements “stable” despite having agreements in place that have the potential to undermine each ADI’s ability to weather financial stress.
‘Watertight’ funding requirement sees Aussie banks named and shamed
Three Australian banks have been criticised for calling their intra-group funding arrangements “stable” despite having agreements in place that have the potential to undermine each ADI’s ability to weather financial stress.
Macquarie Bank, Rabobank Australia and HSBC Bank have all been called out by APRA for being in breach of the prudential liquidity standard.
A review from the authority found the banks were “improperly reporting the stability of the funding they received from other entities within the group”.
It was said that the banks had provisions in their funding agreements that would potentially allow the group funding to be withdrawn in a stress scenario, “undermining the stability of the Australian bank”.
Commenting on the breaches, APRA’s deputy chair John Lonsdale said, “Macquarie Bank, Rabobank Australia and HSBC Australia are financially sound, with strong liquidity and funding positions in the current stable environment.”
“However, to ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed,” he added.
APRA said it now requires these banks to strengthen their intra-group agreements to ensure term funding can’t be withdrawn in financial stress scenarios.
The banks must also restate past funding and liquidity ratios where they were reported incorrectly to provide transparency for investors and the community, a statement explained.
The authority said that supervisors are now considering a range of further options for regulation of the banks in breach, and may impose higher funding and liquidity requirements on all three ADIs.
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