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APRA proposes hiking capital requirements

Tom Westbrook
Australia's banking regulator wants to further lift banks' capital requirements

Australia's banking regulator wants to further lift banks' capital requirements in order to strengthen the financial system's ability to cope with shocks.

The Australian Prudential Regulation Authority has proposed lifting total capital requirements for the country's four biggest lenders by four to five percentage points by 2023, in a discussion paper it released on its website.

APRA has already ordered the big banks to boost capital twice since 2015 as it seeks to make the sector impregnable to global shocks.

Australia's major lenders - Commonwealth Bank of Australia , Westpac Banking Corp, ANZ Banking Group Ltd and National Australia Bank Ltd - hold combined market share of more than 80 per cent, raising fears their failure could fatally damage the broader economy.

While not an existential threat, they are under immense pressure at the moment after a sector-wide public inquiry exposed widespread misconduct in the industry.

Billions of dollars have been knocked from the market capitalisation of the banks in the wake of the revelations, as investors price in an anticipated tightening of regulations.

APRA said banks could use any form of capital to meet the higher requirements and that it anticipated most of it would be tier 2 capital. That would marginally increase funding costs, APRA said.

"The aim of these proposals and resolution planning more broadly is to ensure that the failure of a financial institution can be resolved in an orderly fashion," APRA Chairman Wayne Byers said in a statement.

APRA is seeking industry feedback before the proposals are implemented.