Reserve Bank releases analysis of Capital Review

Reserve Bank releases independent analysis of Capital Review

01 October 2019

The Reserve Bank has today released three independent international experts’ assessments of its Capital Review.

The proposals aim to protect the public from the personal, social, and economic impacts of a potential bank failure. The independent experts were commissioned to consider the analysis and advice underpinning the proposals.

“Each independent reviewer signalled their support with the direction proposed in the Capital Review,” says Geoff Bascand, Deputy Governor of the Reserve Bank.

“They all acknowledged the quality of analysis underpinning our proposals, the transparency of our process, and the care we have taken to consider the points raised by submitters during the consultation process to date.”

The experts were asked to take into account the objectives of the Capital Review as well as the domestic context, the available literature, the international debate, and global policy developments relating to the role of bank capital.

“We are continuing our work on some technical suggestions made by the experts, as well as finalising our decisions and ultimate review,” Mr Bascand says.

The Reserve Bank is continuing its stakeholder outreach programme, which includes general public focus groups and engagement with wider industry groups on the potential costs and benefits.

“Along with the external expert reports and submissions received, these inputs will help us to make robust, well-calibrated policies and decisions that best represent society’s interests.”

Responses to the reports and the submissions on the fourth consultation paper will be published alongside final decisions, expected in the first week of December 2019.

Implementation of any new capital rules is proposed to start from April 2020, with a transition period of a number of years before banks would need to meet the new requirements.

More information:

• External Expert Reports
•
• Summary Document (PDF 197KB)
•
• Qs&As (PDF 264KB)
•
• Terms of Reference (PDF 102KB)

Notes to editors:

The Capital Review began more than two years ago, when the Reserve Bank published an Issues Paper and opened the first of four public consultations.

The three independent experts are:

• Dr James Cummings: Lecturer in Finance at the University of Sydney, formerly based at Macquarie University and before that, on the staff of APRA;

• Professor Ross Levine: Willis H. Booth Chair in Banking and Finance at the Haas School of Business, University of California and formerly an economist at the Board of Governors of the Federal Reserve and the World Bank; and

• Professor David Miles: Professor of Financial Economics at Imperial College, London and formerly Chief UK economist of Morgan Stanley during the GFC.

A short summary document, which identifies the experts’ main themes, has been published alongside the full external expert reports.

There are four consultation papers published by the Reserve Bank as part of the Capital Review. The first, an Issues Paper, discussed at a high level the scope and key issues that should be covered by the Review. The second, What should qualify as bank capital?, discussed the definition of regulatory capital instruments. Questions relating to the measurement of risk for bank exposures were addressed in the third consultation paper, Calculation of risk-weighted assets. The most recent consultation paper, How much capital is enough?, asks for views on proposed capital requirements for banks, as well as the other proposals in the Capital Review to date.

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