Basel II and securitisation: the new APRA APS 120

Heidi Richards, General Manager Australian Prudential Regulation Authority (APRA), recent speech to the Australian Securitisation Conference explained that APRA expects the ADI to be independent of its securitisation vehicles and vice versa.

This independence principle has certainly been put to the test in recent months. Some securitisation structures around the world have not met this test very successfully. While APRA has been monitoring the market situation and its impact on ADIs very closely, we remain of the view that our regulated institutions are well positioned to weather the current turbulence. As has been stated here often in the last day or so, credit quality in Australia remains strong.

In respect of APS 120, she explained that:
ADIs will have until mid-2008 to assess their programs and facilities against the standard’s new operational requirements, and if necessary, apply to APRA for transition relief for up two years. Note that the new securitisation capital calculations for standardised and IRB banks will apply as of 1 January along with the other Basel II requirements; the transition relief applies only to changes to operational aspects of the standard, such as clean sale provisions and facility criteria, and only to pre-existing programs and facilities, that is, those issued before 1 January…

APRA supervisors are likely to pay more explicit attention to contingent liquidity commitments, such as ABCP liquidity lines, in assessing the adequacy of ADI’s liquidity risk management going forward. We are also less likely to accept that the ability to securitise assets is an automatic source of liquidity.

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