APRA reforms to ‘strengthen the ability of banks’

According to the government agency, these changes have come in response to the US and European banking crises of March last year.

The crisis refers to a series of financial disruptions that impacted banks in both the US and Europe, leading to significant concerns about the stability of the banking sector.

This led to complications such as bank failures and stock market declines and underscored the need for policy and regulatory reforms.

In response to this drama, APRA consulted on changes to liquidity arrangements in November last year. During the formal three-month consultation period, APRA received 35 submissions from entities, individuals, and industry bodies.

APRA has now released a response paper confirming the implementation of two out of three proposed reforms, taking effect from 1 July 2025:

1. Banks subject to the minimum liquidity holdings (MLH) regime for calculating their liquidity requirements will be required to adjust the value of their liquid assets regularly for movements in market prices.
2. All banks must be operationally ready to provide certain key information regarding their financial position when requesting exceptional liquidity assistance (ELA) from the Reserve Bank of Australia.

APRA is hoping to strike a balance between financial safety, competition, and efficiency, said APRA member Therese McCarthy Hockey.

“Australia’s many small banks provide valuable services to communities across Australia, but to keep doing so into the future, they must remain financially resilient. The changes to liquidity requirements we have announced today will put these banks in a better position to withstand the types of liquidity shortfalls that saw multiple overseas banks fail or need rescuing last year,” said McCarthy Hockey.

“In deferring changes to APRA’s liquidity standard to the broader review, we have the opportunity to engage further with industry concerns and consider a wider range of options to promote liquidity resilience.”

Minimum liquidity holdings (MLH) banks are now urged to “take steps to improve the diversification of their liquidity portfolios in line with APRA’s existing requirements and guidance,” said APRA.

“This should be reflected in banks’ usual annual review of liquid assets under Prudential Standard APS 210 Liquidity (APS 210). APRA requests these annual reviews be provided to APRA when approved by the board and by no later than 1 July 2025. Banks with material concentrations of bank debt securities should expect heightened supervisory attention consistent with APRA’s existing supervisory framework,” it said.

[Related: APRA reduces Westpac’s risk capital]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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