APRA welcomes Basel endorsement of Australia’s bank leverage ratio framework

The Australian Prudential Regulation Authority (APRA) welcomes the Basel Committee on Banking Supervision's (BCBS) finding that the regulations implementing the leverage ratio framework in Australia are compliant with BCBS standards.

This is the highest possible grade.

The finding follows an assessment by the BCBS's Regulatory Consistency Assessment Programme (RCAP), which was published on Tuesday.

The leverage ratio complements APRA's risk-based bank capital framework by limiting the amount of debt a bank can take on relative to its capital. It measures the proportion of a bank's assets that is funded through equity (capital) rather than debt, providing an alternative perspective on the bank's capital strength.

It was introduced as part of the Basel III reforms to restrict the build-up of leverage in the banking sector.

In Australia, the BCBS leverage ratio standard is implemented mainly through APRA's Prudential Standard APS 110 Capital Adequacy. It only applies to the six banks that have been approved to use the internal ratings-based approach for credit risk.1

Most of Australia's leverage ratio regulations mirror the Basel standards. In a small number of areas, APRA has taken a pragmatic approach to align with the spirit of the BCBS standards while having regard to Australian conditions, industry feedback and regulatory burden. This approach aligns with APRA's commitment to getting the balance right by maintaining high prudential standards while avoiding unnecessary cost and complexity in its regulations.

The RCAP assessment of Australia's leverage ratio framework is available at: Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel Committee's leverage ratio framework - Australia.

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $10.6 trillion in assets for Australian depositors, policyholders and superannuation fund members.