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.
The requirements for the capital conservation buffer are set out in Prudential Standard APS 110 Capital Adequacy:
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.
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 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:
Effective from 1 January 2016: zero per cent of risk-weighted assets.
17 December 2015 announcement:
January 2017 Information Paper: