APRA applies additional capital requirements to ANZ, NAB and Westpac

The Australian Prudential Regulation Authority (APRA) has announced that it is applying additional capital requirements to ANZ, NAB and Westpac, reflecting their higher operational risks.

This follows their self-assessments on governance, accountability and culture. The capital add-ons will apply until the banks have completed their planned remediation to strengthen risk management, and closed gaps identified in their self-assessments.

APRA has released an Information Paper: Self-assessment of governance, accountability and culture

ANZ, National Australia Bank (NAB) and Westpac have been advised of an increase in their minimum capital requirements of $500 million each, and the decision follows APRA’s decision last year to apply a $1-billion-dollar capital add-on to Commonwealth Bank of Australia (CBA) following their Prudential Inquiry.

“Australia’s major banks are well-capitalised and financially sound, but improvements in the management of non-financial risks are needed. This will require a real focus on the root causes of the issues that have been identified, including complexity, unclear accountabilities, weak incentives and cultures that have been too accepting of long-standing gaps,” APRA Chair Wayne Byres said.

“The major banks play a vital role in the stability of the entire financial system, and APRA expects them to hold themselves to the highest standards of risk governance. Their self-assessments reveal that they have fallen short in a number of areas, and APRA is therefore raising their regulatory capital requirements until weaknesses have been fully remediated,” Mr Byres said.

APRA says its supervisors will continue to provide tailored feedback to other banks, insurers and superannuation licensees that provided self-assessments to APRA. Where weaknesses are identified, it will increase the level of supervisory scrutiny as remediation actions are implemented.

Where material weaknesses exist, APRA says it will continue to consider applying additional operational risk capital requirements elsewhere.

Similar actions were taken by the Reserve Bank of New Zealand via its own assessments, which announced that it would now require all locally incorporated banks to hold more capital in reserve, estimated at around $20bn. Australian banks own 86% of New Zealand’s banks. Already the banks have also threatened to pass the cost onto consumers, and claim that it will ‘put a handbrake on the economy’ according to local news outlet Stuff.co.nz. ANZ CEO Shayne Elliot has threatened to downsize ANZ’s NZ operations or leave the market altogether, according to newspaper The New Zealand Herald.

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