Tougher risk rules ruled out by banks and APRA

Australian banks have joined the Australian Prudential Regulation Authority to lobby against a proposed global rule which would require banks to assign 20 per cent more capital to offset operational risk.

The proposal is part of the Swiss-based Basel committee review of global banking rules to which Australia is adheres and is run by representatives of the Group of 10 countries.

Operational risk includes such matters as computer failure, industrial action and large scale fraud. The proposal would mean that banks must maintain capital of 9.6% of its lending book as opposed to the current 8%.

For example, National Australia Bank, which has assets of $250 billion would have to maintain capital adequacy levels of of $4 billion. This would mean that it would have effectively $50 billion less in funds to lend.

The Basel committee is also proposing that regulators allow more flexibility for banks with robust internal systems for managing and measuring risk. ANZ Bank, which is among the opponents of the proposed changes argues that with such systems in place there is no need to increase risk weightings. APRA agrees that the proposals ‘as they stand’ would be difficult to implement.

The Australian, 25/6/01

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