The Australian Prudential Regulation Authority (APRA) has finalised consequential amendments to its bank prudential framework to phase out Additional Tier 1 (AT1) capital instruments – also known as hybrid bonds – as eligible regulatory capital. Background.
The main change from the initial proposal is a reduction in the minimum leverage ratio requirement from 3.5 per cent of Common Equity Tier 1 (CET1) capital to 3.25 per cent of CET1.
APRA will allow banks to replace AT1 predominantly with cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress.
Existing AT1 will be phased out gradually to ensure an orderly transition and limit any immediate impacts on issuers or investors. APRA expects all AT1 issued by banks to be phased out by 2032. There will be no changes to the existing legal terms, including subordination, of these outstanding instruments.
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Author: David Jacobson
Principal, Bright Corporate Law
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The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
