Bank Capital Adequacy nationwide Essay

WP/12/25

Bank Capital Adequacy in Australia

Byung Kyoon Jang and Niamh Sheridan

© Worldwide Monetary Fund

IMF Functioning Paper Asia and Pacific cycles Department Lender Capital Adequacy in Australia Made by Byung Kyoon Jang and Niamh Sheridan1 Authorized for distribution simply by Ray Creeks January 2012 Abstract This kind of Working Paper should not be reported as which represents the opinions of the IMF. The opinions expressed from this Working Daily news are the ones from the writers and do not actually represent the ones from the IMF or IMF policy. Doing work Papers illustrate research happening by the author(s) and are published to generate comments and further controversy. The newspaper finds that, given Australia's conservative strategy in putting into action the Basel II platform, Australian banks' headline capital ratios underestimate their capital strengths. Offered their substantial capital top quality and the progress in their money profiles considering that the global financial crisis, the Australian financial institutions are making very good progress toward meeting the Basel III requirements, including the new fluid standards. Pressure tests calibrated on the Irish crisis knowledge show the fact that banks may withstand large shocks with their exposure to non commercial mortgages. Yet , combining non commercial mortgage shocks with business losses predicted at the optimum of the global financial crisis would place more pressure on Aussie banks' capital. Therefore , it could be useful to consider the value of higher capital requirements pertaining to systemically essential domestic financial institutions. JEL Classification Numbers: G20, G21, G28, F32 Keywords: Australia, Canada, Basel II, Basel III, capital, damage given default, probability of default, anxiety tests Author's E-Mail Addresses: [email protected] org, [email protected] org The writers would like to say thanks to the Hold Bank of Australia, the Australian Prudential Regulation Authority, and the Australian Treasury for valuable remarks on previously drafts on this paper. We benefited greatly from comments and recommendations from Beam Brooks, Nancy Rawlings, Kate Seal, Liliana Schumacher, and Nicolas Blancher. Kessia Para Leo and Solomon Stavis provided good assistance. 1

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Introduction...................................................................................................................... 3 Popular features of the Aussie Banking Program..................................................................... 3 Basel II Rendering and Capital Ratios.................................................................... 6th Basel 3 and Aussie Banks...................................................................................... eleven How Susceptible are Australian Banks to Shocks to Residential Home loans?............... 13

Statistics 1 . Property of Four Major Banks pertaining to Selected Countries, 2010.............................................. 4 2 . Bank Sector Property for Picked Countries................................................................. four 3. Financial institution Nonperforming Loans to Total Loans.................................................................... 6 four. Bank non-performing Loans to Total Loans.................................................................... 6th 5. Indebted Households, 2009.............................................................................................. 6 6. Total Initial External Debt...................................................................................... 6 7. Loss Given Default in Residential Loans................................................................ 6 8. Total Regulating Capital Ratio, 2010.............................................................................. six 9. Rate 1 Regulating Capital Percentage, 2010............................................................................. 7 10. Real Common Value to Risk Weighted Assets, 2010.............................................. 7 11. Tangible Common Value to Touchable Assets, 2010...

References: Aussie Bankers' Association Inc., 2009, Comparison of Regulatory Capital Frameworks: APRA as well as the UK FSA, June. Aussie Prudential Control Authority (APRA), 2010a, Perception, Issue installment payments on your ____________, 2010b, Supervisory Oversight and Response System, The fall of. ____________, 2010c, Probability and Impact Rating System, Nov. ____________, 2011a, Implementing Basel III Capital Reforms in Australia, September. ____________, 2011b, The RBA Fully commited Liquidity Center, Media Relieve, November. ____________, 2011c, Employing Basel 3 Liquidity Reforms in Australia, Nov. Basel Committee on Financial Supervision (BCBS), 2006, Intercontinental Convergence of Capital Measurement and Capital Standards: A Revised Structure. ____________, 2009, Strengthening the Resilience with the Banking Sector, December. ____________, 2011, Global Systemically Crucial Banks: Evaluation Methodology and the Additional Reduction Absorbency Requirement, November. Bologna, Pierluigi, 2010, " Australian Banking System Resilience: What Should be Expected Excited? An International Perspective, ” IMF Working Newspaper No . 10/228 (Washington: Worldwide Monetary Fund). Davis, Kevin, 2011, The Australian Economic climate in the 2000s, paper presented at the Book Bank of Australia, Total annual Research Convention, August. Debelle, Guy, 2011, Collateral, Funding and Fluidity, Address to Conference about Systemic risk, Basel III, Financial Steadiness and Polices, June. Western Banking Power, 2011, 2011 EU-Wide Anxiety Test: Methodological Note, 03. Financil Balance Board, 2010, Intensity and Effectiveness of SIFI Direction: Recommendations for Enhanced Supervision, November. ____________, 2011, Peer Review of Australia, September. International Monetary Fund, 2010, Australia: Basel II Setup Assessment, IMF Country Report No . 10/107, May.

19 Kiff, Ruben, 2010, " Canada's Enclosure Finance Program: Policy Backdrop, ” canada: Selected Problems Paper, IMF Country Record No . 10/378 (Washington: International Monetary Fund). Laker, J. F., 2010, The Australian Banking System Under Stress?, Australian Business Those who claim to know the most about finance, Sydney, 06 9. Reserve Bank of Australia, 2010a, Financial Stableness Review, Drive. ____________, 2010b, Australian Execution of Global Liquidity Standards, Joint Media Release, December. Takats, E., and P. Tumbarello, 2009, " Australian Financial institution and Corporate Sector Vulnerabilities—An Intercontinental Perspective, ” IMF Functioning Paper No . 09/223 (Washington: International Budgetary Fund).

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