Breaking News

Merck KGaA, Maker of Erbitux Cancer Drug, to Acquire Sigma-Aldrich for $17 Billion
Tweet TWEET

RBA to Help Australian Banks Meet Basel Rules With New Liquidity Facility

Australia’s central bank will offer contingency loans to lenders in a plan to help them meet global liquidity rules aimed at averting a repeat of the credit crisis.

The Reserve Bank of Australia will provide secured facilities to cover any gaps between lenders’ liquid assets and global regulators’ requirements, according to an e-mailed statement from the RBA and the Australian Prudential Regulation Authority today. Banks will pay a yet-to-be-determined fee and put up assets eligible for repurchase transactions with the RBA as collateral to access the standby funds, it said.

“The regulator has created an alternative liquid asset,” Sally Auld, a Sydney-based interest rate strategist at JPMorgan Chase & Co., said in a note to clients. “The fee is essentially a payment for the right to access the government (RBA) balance sheet in times of stress.”

Global bank regulators in Basel published a so-called rules text clarifying standards yesterday. Regulators, including the Group of 20 nations, are focusing on ways to bolster banks’ liquidity and capital to prevent a re-run of the worst financial crisis since the Great Depression.

While banks in most countries will meet Basel’s liquidity coverage ratio predominantly through holding government debt, there aren’t enough sovereign bonds outstanding in Australia for lenders to buy, APRA and the RBA said today.

There’s about A$175 billion ($173 billion) of Australian government debt on issue, according to a federal website. Sales of U.S. government bonds will top $1.5 trillion in 2010, Treasury data show.

Liquidity Standards

The Basel Committee on Banking Supervision wants banks to hold enough assets that can be converted into cash to meet their needs for 30 days in a “severe liquidity stress scenario.” More than 60 percent must comprise securities including cash, central bank reserves, sovereign bonds and debt sold by multilateral development banks, the document states. Up to 40 percent can be assets such as highly rated non-financial corporate bonds and covered bonds.

The liquid asset portfolios of Australia’s four biggest banks currently total about A$333 billion, Westpac Banking Corp. credit strategists Brendon Cooper and Chris Walter wrote in a note to clients today. That includes some securities that won’t be eligible under the new rules, they wrote.

Australia’s larger banks will have to show “they have taken all reasonable steps” toward meeting Basel requirements “through their own balance sheet management, before relying on the RBA facility,” according to today’s statement.

Strike a Balance

The RBA must strike a balance when setting the fee, JPMorgan’s Auld wrote. Banks may choose to increase the size of their secured facility if it is too low, or may raise lending rates to recoup the costs if the fee is too high.

Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd., Commonwealth Bank of Australia and Westpac, which control more than 80 percent of the home-loan market, drew public criticism after raising mortgage rates faster than the central bank increased borrowing costs.

Australian Treasurer Wayne Swan, who is seeking support for a plan to increase bank competition, said in a statement today that the Basel requirements don’t give lenders “justification for stinging customers with any additional costs.”

Commonwealth Bank fell 0.5 percent to A$50.70 on the Australian stock exchange at the 4:10 p.m. close of trading in Sydney. Westpac gained 0.2 percent to A$23.19 and National Australia Bank dropped 1.2 percent to A$24.15. ANZ slipped 0.7 percent to A$23.59.

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.