ABA WELCOMES APRA'S DISCUSSION PAPER ON
SECURITISATION AND TIER 1 CAPITAL INSTRUMENTS

Sydney, 31 August, 2005: The Australian Bankers’ Association (ABA) welcomes the Australian Prudential Regulation Authority’s (APRA) discussion paper regarding its proposed approach to the prudential treatment of securitisation and its treatment of eligible Tier 1 capital instruments.

David Bell, Chief Executive of the ABA, said: “While the detail of the proposals and their implications will need to be examined further, the proposed transitional arrangements address a major concern of banks.”

Under the proposed transition arrangement, Basel II capital measurement changes and Tier 1 capital limits on innovative hybrid instruments will be implemented simultaneously; this removes the likely disruptive effect of the banking industry (in aggregate) having to raise capital in one period and then reducing it shortly afterwards.

In addition, APRA is proposing to extend the transition period to 2010 for those institutions materially impacted by the changes to capital eligibility.

The proposed changes to eligible Tier 1 capital definitions will increase fundamental capital requirements, but they do appear to be consistent with international trends and were expected by the industry. The extent of the increase will depend, in part, upon the effect of the treatment of capital deductions – now being deducted, and proposed to be deducted under APRA’s implementation of International Financial Reporting Standards (IFRS).

With respect to the proposed securitisation treatment, APRA is proposing to de-couple the accounting treatment from its prudential approach so long as the banks’ securitisation documentation fully removes credit risk from the banks’ balance sheets. This is a sensible and pro-competitive outcome.

The ABA will now examine the details of the proposals with a view to making a submission to APRA within the consultation period.

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS