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Prudential liquidity policy for banks finalised

The Reserve Bank today released the finalised version of its prudential liquidity policy for banks, originally announced at the end of June.

Since issuing the policy on 30 June, the Reserve Bank has been engaged in extensive consultation with the banks and this has resulted in some changes to the initial liquidity ratio definitions as well as changes in the overall calibration of the requirements.

Deputy Governor Grant Spencer said: "In light of feedback on the initial policy, the Reserve Bank is now giving the banks more time to set up the systems they need to monitor compliance with the required minimum liquidity standards. So while the policy framework has now been formally imposed on the large Australian subsidiaries and on the locally-owned banks, they will have until 1 April 2010 to meet the requirements of the policy."

The policy includes a minimum one-year Core Funding Ratio (CFR), which aims to ensure that banks hold sufficient retail and longer-dated wholesale funding. The minimum for the CFR will start at 65 percent. The Reserve Bank plans to increase this minimum to 70 percent from 1 July 2011 and to 75 percent from 1 July 2012.

The Reserve Bank will shortly extend the policy to all other registered banks, including the foreign bank branches. The ratio requirements will be adapted for them on a case-by-case basis, taking account of factors such as their home country prudential liquidity requirements.

Media contact:
Anthea Black
External Communications Adviser
04 4713767, 021 2225225, [email protected]