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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

APRA boosts banks buffer to make safer

23 December 2013

Australia’s big four banks will be forced to lift their buffers for absorbing losses by an extra 1 per cent from January 2016, the Australian Prudential Regulation Authority has said.

It has been announced that in order to make the four banks more resilient and less of a risk to the financial system The Commonwealth Bank, Westpac, National Australia Bank and ANZ Banking Group will be forced to set aside billions more in capital.

The changes are designed to reduce the probability of a failure of a big bank out of concerns about the larger impact this would have on the financial system and the economy, however the Macquarie Group and regional banks will not be affected by the regulator’s changes due to the concern that that the change may “affect the rapid growth in bank dividends that has helped underpin their strong share price performance”.

With each of the four large banks holding more than $400 billion in assets in Australia, Macquarie, only holds domestic assets worth a fraction of this amount and, APRA has reiterated that, “while the rules should make banks safer, would not be ‘‘immune from failure.”

APRA also conceded that the intention was 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.”

National Australia Bank was the first of the banks to react to the news saying that, “in a market filing that it expected to meet the new requirements through organic capital generation in its owns business, and, if required, its dividend reinvestment plan.”

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