The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper, accompanied by proposed amendments to relevant prudential standards and prudential practice guides (PPGs), on proposals to enhance the Basel II Framework in Australia.
The consultation package is a response to measures released in July 2009 by the Basel Committee on Banking Supervision to enhance the Basel II Framework by ensuring that the risks inherent in banks' portfolios relating to trading activities, securitisations and exposures to off-balance sheet vehicles are better reflected in minimum capital requirements, risk management practices and accompanying public disclosures.
The proposed changes to prudential standards outlined in APRA's discussion paper include:
- higher capital requirements to capture the credit risk of complex trading activities and the introduction of a stressed value-at-risk (VaR) requirement;
- higher risk-weights for so-called 'resecuritisation' exposures to better reflect the risk inherent in these products, and increased credit conversion factors for short-term liquidity facilities provided to off-balance sheet conduits;
- guidance in relation to valuation practices and capture of off-balance sheet and securitisation activities; and
- increased disclosure requirements for securitisations and off-balance sheet exposures.