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Capital buffers

As part of the Basel III reforms to the capital framework introduced in 2013, APRA requires locally incorporated ADIs (other than providers of purchased payment facilities) to hold a buffer of Common Equity Tier 1 (CET1) Capital, over and above each ADI’s minimum requirement, comprised of three components:
  • a capital conservation buffer, applicable to at all times, generally equal to 2.5 per cent of risk-weighted assets;
  • an additional capital buffer applicable to any ADI designated by APRA as a domestic systemically important bank (D-SIB), currently set to 1.0 per cent of risk-weighted assets; and
  • a countercyclical capital buffer applicable to all affected ADIs, but which may vary over time as a result of changes to the jurisdictional buffer set by APRA or national authorities in other jurisdictions in response to market conditions. The Australian jurisdictional countercyclical capital buffer may range between zero and 2.5 per cent of risk-weighted assets.
 
Capital conservation buffer
 
The requirements for the capital conservation buffer are set out in Prudential Standard APS 110 Capital Adequacy:
 
Guidance on the operation of the countercyclical capital buffer and on the operation of constraints on capital distributions where an ADI’s CET1 falls within the capital buffer range is set out in Prudential Practice Guide APG 110 Capital Buffers: http://apra.gov.au/adi/PrudentialFramework/Pages/authorised-deposit-taking-institutions-ppgs.aspx
 
D-SIBs
 
APRA’s December 2013 Information Paper, Domestic systemically important banks in Australia, sets out APRA’s methodology for assessing which ADIs are D-SIBs: http://www.apra.gov.au/adi/Publications/Documents/Information-Paper-Domestic-systemically-important-banks-in-Australia-December-2013.pdf
 
Current D-SIBs
 
APRA determined in December 2013 that the following ADIs are D-SIBs:
  • Australia and New Zealand Banking Corporation
  • Commonwealth Bank of Australia
  • National Australia Bank
  • Westpac Banking Corporation
 
APRA determined in December 2013 that the additional capital buffer for D-SIBs is 1.0 per cent of risk-weighted assets, to be held in CET1 Capital from 1 January 2016 as an extension to the capital conservation buffer.
 
Countercyclical capital buffer
APRA's December 2015 Information Paper, The countercyclical capital buffer in Australia, sets out APRA's approach to assessing the appropriate settings for the countercyclical capital buffer:
 
The requirements for the countercyclical capital buffer are set out in Prudential Standard APS 110 Capital Adequacy: http://www.apra.gov.au/adi/PrudentialFramework/Pages/prudential-standards-and-guidance-notes-for-adis.aspx
 
The Basel Committee on Banking Supervision has established a webpage on which any country with countercyclical capital buffer requirements — including non-Basel Committee members — may list their buffer rates: http://www.bis.org/bcbs/ccyb/index.htm
 
From 1 January 2018, ADIs will be required to report their ADI-specific countercyclical capital buffer under Reporting Standard ARS 110.0 Capital Adequacy: 
 
Australian jurisdictional buffer rate
 
Effective from 1 January 2016: zero per cent of risk-weighted assets.
 
17 December 2015 announcement:
 
December 2017 Information Paper: