The Australian Prudential Regulation Authority (APRA) has released for consultation its proposed updates to the guidance on contingent liquidity for locally-incorporated authorised deposit-taking institutions (ADIs) subject to minimum liquidity holdings (MLH) requirements in Prudential Standard APS 210 Liquidity (APS 210).

During the COVID pandemic, in 2020, APRA wrote to the industry with guidance that MLH ADIs should hold a higher level of self-securitised assets as contingent liquidity from 10 per cent to no less than 20 per cent of the ADI’s total deposits and short-term wholesale liabilities.

APRA now proposes that for locally-incorporated MLH ADIs with more than $1 billion in liabilities, a prudent approach would be to hold self-securitised assets equivalent to at least 10 per cent of their total deposits and short-term wholesale liabilities as a contingency for periods of stress. APRA would expect the self-securitised assets to be unencumbered, and not held as collateral for any other purpose.

APRA expects MLH ADIs to ensure they have the capacity including the operational capability to increase their self-securitisations to at least 20 per cent within one month. If there are concerns about an ADI’s operational capability to increase their self-securitisation within one month or its liquidity risk profile, it would be prudent for the ADI to hold a higher level of self-securitised assets. APRA may also require the ADI to maintain higher minimum liquidity holdings under APS 210 where there are certain liquidity risk concerns.

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