APRA enforces stable funding requirements on banks

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The Australian Prudential Regulation Authority (APRA) has required several banks to tighten the intra-group funding arrangements for their Australian operations.

Following a review of funding agreements across the authorised deposit-taking (ADI) industry, APRA has notified Macquarie Bank Limited, Rabobank Australia Limited and HSBC Bank Australia Limited that the reporting of their intra-group funding as stable has been in breach of the prudential liquidity standard[1].

APRA’s review found these banks were improperly reporting the stability of the funding they received from other entities within the group. These banks had provisions in their funding agreements that would potentially allow the group funding to be withdrawn in a stress scenario, undermining the stability of the Australian bank.

APRA is requiring these banks to strengthen intra-group agreements to ensure term funding cannot be withdrawn in a financial stress scenario. APRA is also requiring these banks to restate their past funding and liquidity ratios where these had been reported incorrectly, to provide transparency to investors and the broader community. Supervisors are considering a range of further options, including the imposition of higher funding and liquidity requirements on these ADIs.

APRA Deputy Chair John Lonsdale said: “Macquarie Bank, Rabobank Australia and HSBC Australia are financially sound, with strong liquidity and funding positions in the current stable environment. However, to ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed.”

To assist ADIs in complying with the prudential regulations, APRA has published a new frequently asked question (question 17), available on the following page: Liquidity – frequently asked questions.

Footnote:

[1] APS 210 Liquidity
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