The Customer-owned Banking Association (COBA) has come out in favour of more transparency within capital regulations to increase competitiveness between banks.
COBA has spoken at a time in which APRA is moving towards a new capital framework that has been in the pipeline for several years and seeks to make Australian banks reach the level of ‘unquestionably strong’, as per the capital ratios set out in the Basel Committee, the global best practice standard for banking.
“This new capital framework has been in consultation with APRA for three years now,” said Michael Lawrence, CEO of COBA. “The intent of it is get to the ‘unquestionably strong’ position, which means that IRBs need to lift 150 basis points and standardised banks have to lift by 50.”
“This framework aims to get to that ‘unquestionably strong’ position across the Australian banking sector without the need to apply additional capitals. That’s the intent of it coming out of Basel Committee recommendations, and APRA have applied it as they see fit here. It’s been through significant consultation to the point where we’re nearly at finalisation here.”
“From our perspective, the real issue was trying to bridge the gap between the IRBs and the standardised in terms of the amount of capital that needed to be held for the same home loan.”
The big four banks are IRBs, which means that they can set their own internal ratings for risk, whereas standardised banks, such as those represented by COBA, are forced to comply with regulations set externally.
“The good news for the consumer is that it helps with competition,” said Lawrence. “If our members, the customer-owned banks, are more competitive and can be because of the changes in these capital rules, that’s got to be better for consumers because they’re in a position to continue to lend to them and provide an alternative in the sector.”
“The pleasing thing too is that the IRB banks are going to have to provide a comparison on capital based on a standardised approach. Even though they’re IRB and comply with IRB standards, they at least need to have general transparency around that comparison.”
“We can now compare ourselves with the Big Four in terms of a capital for a certain asset. That’s good because it means that they can be held to account.”