APRA puts higher capital requirements on Big Four

by Adam Smith24 Dec 2013
APRA has put higher capital requirements on the Big Four, saying that no financial institution should be too big to fail.

The banking regulator has released a statement imposing a requirement of an additional 1% of core tier 1 capital for ANZ, Commonwealth Bank, Westpac and NAB. APRA said the capital requirement would reduce the probability of failure of the systemically important banks compared to other institutions. The move is in response to the Basel Committee's framework for responding to domestically systemically important banks (D-SIBs), and APRA said the framework responded to the view that "no financial firm should be too-big-to-fail, and that taxpayers should not bear the cost of resolution".

"APRA emphasises that the designation of a bank as a D-SIB does not make it immune from failure. Rather, the designation is intended to ensure that banks perceived to be ‘too-big-to-fail’ are subject to more intense supervisory oversight and have greater capacity to absorb losses, to increase their resilience to failure."

APRA said the majors already held significant capital buffers above the regulator's minimum standard, and were expected to hold sufficient capital to meet the new requirements when they come into place on 1 January 2016.