Banking (prudential standard) determination No. 1 of 2010
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Banking Act 1959 11AF
The purpose of this Instrument is to repeal Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (January 2008) (APS 112) and to replace it with a revised Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (December 2010).
1. Background
In November 2010, the World Bank requested the Australian Prudential Regulation Authority (APRA) to provide a view on risk-weighting for on-balance sheet assets under APS 112. In particular, it sought APRA's view on whether the International Finance Facility for Immunization (IFFIm) would qualify under APS 112, Appendix A, section 9, footnote 8, for a potential zero per cent risk-weighting.
It has been APRA's practice to follow the Basel Committee on Banking Supervision's (BCBS) categorisation of multilateral institutions, which allow banks to apply a zero per cent risk-weight on claims to these institutions. The BCBS included the IFFIm in its categorisation as a multilateral institution in October 2006. APRA has not updated APS 112 to reflect this amendment and is seeking to update APS 112 to be in line with the BCBS categorisation.
In addition, APRA also confirmed that in May 2010, the BCBS added the Multilateral Investment Guarantee Agency (MIGA) to its list of multilateral institutions and is also seeking to update APS 112 to include MIGA.
2. Purpose of the instrument
The purpose of the instrument is to create a revised APS 112 Prudential Standard Capital Adequacy: Standardised Approach to Credit Risk (December 2010) reflecting the amendment to include the two new multilateral institutions, and to revoke APS 112 Prudential Standard Capital Adequacy: Standardised Approach to Credit Risk (January 2008).
3. Operation of the instrument
There is no impact of the instrument on industry. Banks will benefit from the Instrument, which will allow banks to apply a zero per cent risk-weight to claims on the two multilateral institutions added to the revised APS 112.
4. Consultation
No consultation has occurred as the nature of the changes is such that consultation is unnecessary and inappropriate.