By finance reporter Alicia Barry
The Reserve Bank and Australia’s banking regulator, the Australian Prudential Regulation Authority are creating a new facility to provide banks with emergency funding.
The move comes in the wake of reforms suggested by the international Basel Committee for Banking Supervision (Basel III) to prevent a repeat of the credit constraints that occurred during the global financial crisis.
“The objective is really to enhance the stability of the financial system globally and in order to do that the same rules and requirements need to be imposed across all jurisdictions,” KPMG, risk analyst Paul Lichtenstein said.
The RBA and APRA say that because of limited government securities and a short supply of other eligible liquid assets like non-bank corporate debt, banks will be able to borrow directly from the RBA if they do not have sufficient liquidity to survive a major economic shock.
The joint statement says a small number of countries are in the same position.
This is new role for the RBA and comes on top of the increased lending it provided banks during the recent credit crunch.
Banks will need to offer collateral and will be required to pay the Reserve Bank a fee for the right to access the facility.
The major banks will have also to demonstrate to APRA that they have taken all reasonable steps towards meeting their Liquidity Coverage Ratio requirements through their own balance sheet management, before relying on the RBA.
The standard will come into effect on January 1 2015.
Source: www.abc.net.au
