Tougher capital adequacy required for banks
Banks must be prepared to accept tougher capital adequacy rules and revised accounting standards if a genuine commitment to avoid a repeat of the global financial crisis is to be made, according to the chair of the International Actuarial Association Enterprise and Financial Risks Committee, Tony Coleman.
Coleman has told an Institute of Actuaries of Australia conference in Sydney today that it had been widely recognised that an over-reliance on monetary policy and an inability to manage asset price bubbles were key drivers of the collapse.
He said pro-cyclical capital requirements had then worsened the crisis by leaving banks disastrously short of capital when they needed it most.
In a bid to address the problems, Coleman pointed to two options — formula based and discretionary.
Coleman said formula-based capital management drew down on insurance industry practices where companies were required to store capital in good times to create buffers when markets turned sour — something that could be implemented by the Australian Prudential Regulation Authority (APRA) with government approval.
He said, alternatively, discretionary capital management could be implemented by an independent reserve bank setting capital adequacy parameters.
Coleman said expanding the use of the actuarial control cycle approach was also recommended to improve risk management.
AUTHOR
Mike Taylor
Recommended for you
Net cash flow on AMP’s platforms saw a substantial jump in the last quarter to $740 million, while its new digital advice offering boosted flows to superannuation and investment.
Insignia Financial has provided an update on the status of its private equity bidders as an initial six-week due diligence period comes to an end.
A judge has detailed how individuals lent as much as $1.1 million each to former financial adviser Anthony Del Vecchio, only learning when they contacted his employer that nothing had ever been invested.
Having rejected the possibility of an IPO, Mason Stevens’ CEO details why the wealth platform went down the PE route and how it intends to accelerate its growth ambitions in financial advice.
