Sydney, 6 November, 2008: Work commissioned by the Australian Bankers’ Association (ABA) has found that Australia’s regulatory capital framework leads to higher capital requirements relative to peer UK banks.
 
These findings demonstrate that Australian banks remain strongly capitalised, relative to their offshore peers.
 
David Bell, Chief Executive of the ABA, said: “The Australian banking system is well capitalised in the current environment. The aggregate holding of capital in major banks is in excess of $100 billion and capital in the banking industry as a whole is in the order of $140 billion. These levels provide a conservative buffer against potential unforseen events.”

“Different regulatory frameworks in Australia and other jurisdictions can make it difficult for investors and analysts to make like-for-like comparisons between Australian banks and banks operating offshore.  To compare the Australian banks’ capital positions with their offshore peers, these differences in capital need to be taken into account.”

"The work undertaken demonstrates that Australian banks’ capital ratios would be higher if calculated under UK regulatory requirements.  For some banks, the difference will be in excess of 200 basis points.”

The ABA commissioned this work (prepared by Ernst and Young reviewed by PricewaterhouseCoopers) after meetings with bank analysts about Basel II rules.  Many analysts said that Australian banks were often disadvantaged in competition for attracting wholesale funds because reported bank capital ratios appeared lower than many banks, even though this was a product of conservative regulatory rules.

The ABA plans to monitor and revise this Fact Sheet in response to changes in capital rules and to include comparisons against other regulatory frameworks. Any comments or critiques are welcome.

For a copy of the fact sheet – please visit the ABA website:
www.bankers.asn.au/factsheet_bank_capital

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