APRA lifts liquidity bar
The Australian Prudential Regulation Authority (APRA) has moved to raise the bar on liquidity stress testing for Australia’s banks, credit unions and other authorised deposit-taking institutions (ADIs).
APRA’s intentions were made clear in a discussion paper issued to the industry last week and appear to reflect many of the concerns generated by the liquidity crisis that followed the sub-prime mortgage meltdown and the collapse of Lehman Brothers.
Commenting on the move, APRA chairman John Laker said the regulator’s objective was to strengthen the resilience of ADIs to liquidity risk and improve APRA’s ability to assess and monitor ADIs’ liquidity risk profiles.
He said the proposals laid out in the discussion paper represented the first round of consultation on a regime to build stronger liquidity buffers in the Australian banking system.
Among the key measures outlined in the discussion document are an extension of the ‘going concern’ cash flow projection requirement to all ADIs and a lengthening of the projection to at least 12 months, as well as a strengthening of the current APRA-defined stress testing to ensure ADIs meet a minimum acceptable level of resilience.
AUTHOR
Mike Taylor
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