APRA denies it has doubled tier one capital requirements to 8%

The Australian Prudential Regulatory Regulatory Authority has taken the unusual step of denying a media report that it had doubled the minimum tier one capital ratio for banks to 8%. "Recent media reports have claimed that the Australian Prudential Regulation Authority (APRA) has set a minimum Tier 1 capital ratio of eight per cent for banks and other authorised deposit-taking institutions (ADIs) in Australia. These reports are incorrect," APRA said in a statement. " Under the Basel II Framework, which came into effect in Australia from 1 January 2008, ADIs are subject to a prudential capital ratio (PCR) of eight per cent of total risk-weighted assets. At least half of this capital must be held in the form of Tier 1 capital (the highest quality capital components). That is, the minimum Tier 1 capital ratio is four per cent," APRA said. "These are global minimum requirements, and the Basel Committee on Banking Supervision has recently stated that it does not propose to raise these ratios during the global financial crisis. APRA can, and does, set PCRs for individual institutions at levels above eight per cent, to ensure that minimum capital requirements for an ADI are consistent with its overall risk profile," it said, adding these PCRs were not published. "ADIs in Australia are meeting their capital adequacy requirements and the ADI sector is sound and well-capitalised." * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.