The Reserve Bank of Australia set an annual fee of 15 basis points for financial firms to access standby funds as the nation moves to adopt global liquidity rules aimed at averting a repeat of the credit crisis.
The facilities are needed as the Australian Prudential Regulation Authority reiterated today in a statement that only federal and state government securities can count as liquid assets under the so-called Basel III rules coming into force in 2015, while bonds from supranational issuers won’t qualify. The RBA also said it will widen from Feb. 1, 2012, the margin applied under repurchase agreements to long-term assets issued by entities other than Australia’s governments.
The RBA “is favoring short-end maturities over long end” in its margin increases, said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. Supra-national bonds “haven’t got any particular love from the regulator.”
The Basel Committee is seeking to bolster banks’ liquidity and capital to prevent a repeat of the credit crisis that deepened when Lehman Brothers Holdings Inc. collapsed in 2008. Australia’s lenders largely stayed profitable and didn’t require bailouts during that crisis, which forced financial institutions worldwide to raise $1.6 trillion of capital amid more than $2 trillion of losses.
The regulator aims to “strengthen the resilience” of banks, APRA Chairman John Laker said in the statement.
The secured facilities at the RBA will cover gaps between lenders’ liquid assets and global regulators’ requirements, the central bank and APRA said in separate releases today on their websites.
The RBA said repurchase margins will be increased for all fixed-income securities sold by financial corporations other than asset-backed debt, as well as on some issuances from supra-national institutions. It lowered the margins for federal and state government short-term debt and cut the minimum credit rating allowed on financial firms’ securities to BBB+ from A-.
Lenders will consider the impact of APRA’s liquidity targets, asset definitions and assumptions on cash flows, as well as the operation of the RBA liquidity facility, “to determine the financial impact of the proposed new standards for Australia,” Steven Munchenberg, chief executive of the Australian Bankers’ Association in Sydney, said in an e-mailed statement today.
Commonwealth Bank of Australia, the nation’s biggest lender, said yesterday it had increased liquid assets by A$8 billion ($8.1 billion) in the three months ended Sept. 30 to A$109 billion, causing its underlying net interest margin to fall “marginally.”
The Basel committee 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,” according to a document on the Bank for International Settlement’s website.
While banks in most countries will meet the 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 in a statement in December, when they announced the plan for the central bank to offer contingency loans.
Banks will put up assets eligible for repurchase transactions with the RBA as collateral to access the standby funds, they said. Lenders will also be able to use self-securitized assets to access the facility, APRA said today.
There’s about A$191 billion of Australian government debt on issue, according to a federal website. U.S. marketable debt expanded for a 13th-straight quarter in the three months ended Sept. 30 to total $9.6 trillion, Treasury data show.