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Big four banks issued new instructions to protect investors

  • July 10 2019
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Invest

Big four banks issued new instructions to protect investors

By Cameron Micallef
July 10 2019

The banking regulator has announced changes that would lessen the impact of a market crash on Australian investors. 

APRA

Big four banks issued new instructions to protect investors

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  • July 10 2019
  • Share

The banking regulator has announced changes that would lessen the impact of a market crash on Australian investors. 

APRA

In a statement, the Australian Prudential Regulation Authority (APRA) said it expects the big four banks to increase their total capital by 3 percentage points of risk-weighted assets over the next four years.

What this means is the banks are required to have additional reserves to absorb any volatility. 

It is expected much of this capital will be raised by supplementary tier 2 capital, which includes undisclosed reserves, subordinated term debts and hybrid financial products.

For small to medium-sized authorised deposit taking institutions (ADIs), extra loss-absorbing capacity would be considered on a case-by-case basis on how the new regulations would apply to them. 

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APRA deputy chair John Lonsdale stated this was an important step in minimising the risks of bank failures in Australia as the country tries to move away from relying on taxpayers to guarantee the institutions.

“The global financial crisis highlighted examples overseas where taxpayers had to bail out large banks due to a lack of residual financial capacity. Boosting loss-absorbing capacity enhances the safety of the financial system by increasing the financial resources that an ADI holds for the purpose of orderly resolution and the stabilisation of critical functions in the unlikely event that it fails,” said Mr Lonsdale. 

APRA estimates the increase in total capital requirements will have a less than five basis points cost on the overall funding for the big four banks. 

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Big four banks issued new instructions to protect investors
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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