The ABA was commenting on its submissions on changes to capital and liquidity  rules put forward by the international Basel Committee in its consultative documents – “Strengthening the resilience of the banking sector ” and “International framework for liquidity risk measurement, standards and monitoring”.  

Steven Münchenberg, Chief Executive of the ABA, said: “These new rules are being put in place following the global financial crisis (GFC). But let’s remember that it was some overseas banks which took extreme risks, causing the sub-prime crisis – Australian banks put safety first.”

“We need to prevent our banks being over penalised for an overseas problem which they did not create. Our solid banks are vital for Australia’s growing economy.”

“The banking sector believes that the proposals in their current form are overly severe and could have significant negative consequences for Australia’s longer term economic growth.”

“On liquidity, the current proposals would require banks to hold as much as twice the level of high quality liquid assets, as they are currently holding. On capital, we think the current proposals will mean that banks have to hold significantly more capital.”

“When the changes are added together, the result could be a slowdown in credit availability and an increase in costs, which could push up interest rates, impeding economic recovery and further growth.”

“We are concerned there is political appetite for some in Europe, the UK and the United States for urgent action on regulation to ‘punish’ banks for causing the global financial crisis. We don’t want Australia caught up in unnecessary haste to regulate when Australian banks survived the ultimate stress test of the GFC.”

The ABA wants long transition periods for a smooth adjustment to the final structure of the new regime and flexibility for the national regulators on how the new standards will be implemented, given the particular attributes of our financial markets.

The ABA is working with the Government and the regulators on analysing the full scope of the potential changes, and there is still much work to be done.  Sufficient time must be allowed for thorough and detailed policy development by the Basel Committee, and also in Australia.

For the detail on the ABA response to the proposed standards – please see the ABA submissions on our website – www.bankers.asn.au