Australian banks look like they will escape the full weight of the new, stringent global capital and liquidity rules.

A strong campaign against these harsh rules applying in their entirety to our banks by the lead regulators, APRA and the Reserve Bank, has been successful.

The win means that the already-strong Australian rules on issues such as capital and liquidity will apply. In many cases, these are as stringent, if not more so than the proposed global rules.

Following a meeting of central banks in Basel Switzerland last weekend, there’s news of a radical change in the approach to bank regulation to be put to the Group of 20 leaders meeting in Seoul, South Korea, from tomorrow.

A report in the Financial Times this morning.

“Most big Asian banks will be exempted from a global regulatory regime under the latest ­proposal for the industry from the world’s leading economies, which aims to prevent another financial crisis.

“People briefed on the agenda for the G20 summit, which begins in Seoul on Thursday, said officials had concluded that global regulators should focus on big banks with global ­businesses, stripping out domestically focused institutions ­without the reach of the in­dustry’s cross-border companies.

“According to this criteria, many big lenders in countries such as Japan and China, with a limited presence abroad, will be exempted, leaving domestic regulators to deal with them as they see fit. But in a move that will disappoint some, the G20 is set to defer a decision on whether there should be a globally set capital surcharge for systemically important banks.”

Australian banks, which with the small exception of their links to New Zealand, do not have significant international reach and are overwhelmingly concentrated on the domestic Australian market.

This is a victory for APRA and the RBA, which have pushed the line that the proposed rules on banks should not apply in full to Australian banks, which were heavily regulated before the GFC in many of the areas that brought the financial systems of the US, Europe, the UK and indeed much of the developed world to near collapse.

In fact as late as last week APRA made it clear in its 2010 annual report that it would not wear the harsher rules that were revealed mid-year.

APRA said ( that “The tougher approach to capital quality is unlikely to have significant implications for ADIs in Australia.” (ADIs are Authorised Deposit Taking Institutions, all 182 of them at June 30 regulated by APRA as being able to take deposits from the public.

“Before the global financial crisis, APRA had taken a more conservative approach to the definition and composition of ADI capital and this has served Australia well.”

But it still doesn’t mean that our Big Four banks aren’t going to be subjected to tougher regulation by APRA and the RBA. They will and will have to hold more liquidity than they have done in the past, enough to withstand a month of being cut off from all new funds. That’s what happened in late 2008 when the RBA had to repo $45 billion of self-securitised mortgages to keep the banking system liquid and afloat after the Lehman Brothers collapse.

Peter Fray

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