APRA releases annual paper on countercyclical capital buffer

The Australian Prudential Regulation Authority (APRA) today released its annual Information Paper on the countercyclical capital buffer, designed to raise banking sector capital requirements in periods where excess credit growth is judged to be associated with the build-up of systemic risk.

APRA is maintaining the countercyclical capital buffer at zero per cent.

APRA reviews the level of the countercyclical capital buffer on a quarterly basis, based on forward looking judgements around credit growth, asset price growth, and lending conditions, as well as evidence of financial stress.

The Information Paper released today contains an update on the setting of the buffer and on the levels of a set of core indicators of systemic risks associated with the financial cycle.

This decision to maintain the buffer at zero takes into account APRA’s supervisory activities and prudential measures, particularly on housing lending standards and the establishment of benchmarks on investor lending growth and interest-only lending. APRA considers the quality of lending is improving and is working to ensure improved standards are firmly embedded into industry practice.

APRA will continue to closely monitor developments, including but not limited to movements in the core risk indicators, and will adjust the buffer level if conditions warrant it in future. An announcement to increase the buffer may have up to 12 months’ notice before the new buffer comes into effect; any subsequent decision to reduce the buffer will generally be effective immediately.

The annual countercyclical capital buffer Information Paper can be viewed on APRA’s website.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.