Regulation Impact Statement Updates

Official website for publishing regulatory impact analysis information for regulatory decisions announced by the Australian Government, COAG and COAG Councils.

Counterparty credit risk for Authorised Deposit-taking Institutions

Aust Gov
14th May 2018

Independent Review – Australian Prudential Regulation Authority

On 23 April 2018, the Australian Prudential Regulation Authority (APRA) released its revised prudential framework for counterparty credit risk for authorised deposit-taking institutions (ADI).

The revised Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) and Prudential Standard APS 180: Capital Adequacy: Counterparty Credit Risk (APS  180) implement the Basel Committee’s Standardised approach for measuring counterparty credit risk exposures and Capital requirements for bank exposures to central counterparties – final standard with adjustments to reflect Australian conditions. Under this framework, an ADI with approval to use an internal ratings-based approach to credit risk must use the standardised approach to credit risk (SA-CCR) to measure its counterparty credit risk exposures, while all other ADIs may continue to use the Basel Committee’s Current Exposure Method, recalibrated to achieve a comparable level of financial safety as the SA-CCR.

Revisions, reflecting the revised framework, have also been made to reporting standards, Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures, Reporting Standard ARS 118.1 Other Off-balance Sheet Exposures and Reporting Standard ARS 180.0 Counterparty Credit Risk.

APRA certified the process and analysis in developing the revised framework undertaken by the Authority through the public discussion papers, Counterparty credit risk for ADIs, involved a process and analysis equivalent to a final RIS as set out in The Australian Government Guide to Regulation. The Office of Best Practice Regulation (OBPR) does not assess independent reviews or RIS-like processes that have been certified as such by agencies.

APRA was compliant with the Australian Government RIS requirements and consistent with best practice.

APRA estimated average annual regulatory savings at $4.77 million per annum relative to the implementation of the Basel large exposures framework without recognition of Australian conditions. The OBPR agreed with this estimate.

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