APRA proposes phasing out hybrid bonds for banks
Make us a preferred source
Make us a preferred source on Google
The news: The Australian Prudential Regulation Authority (APRA) wants banks to phase out the use of hybrid bonds in an effort to simplify and improve the effectiveness of bank capital in a crisis.
The numbers: Under its proposed changes, large, internationally active banks would replace 1.5% AT1 bonds with 1.25% Tier 2 and 0.25% Common Equity Tier 1 (CET1) capital. Smaller banks would fully replace AT1 bonds with Tier 2, with a reduction in Tier 1 requirements.
The context: APRA wants banks to phase out the use of hybrid bonds and replace them with cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress.
The total amount of regulatory capital required would be unchanged and banks would remain "unquestionably strong", it said.
The regulator said the proposed changes in a discussion paper released today followed an extensive consultation process that began last September, and includes feedback from 26 submissions and more than 40 engagements.
It also took into account the lessons of last year’s global banking turmoil where several US and European banks either failed or needed to be resolved in short succession, with a number of governments having to intervene.
The source: APRA media release
