IMF Working Papers

Bank Capital Adequacy in Australia

By Niamh Sheridan, B. Jang

January 1, 2012

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Niamh Sheridan, and B. Jang Bank Capital Adequacy in Australia, (USA: International Monetary Fund, 2012) accessed December 2, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper finds that, given Australia's conservative approach in implementing the Basel II framework, Australian banks' headline capital ratios underestimate their capital strengths. Given their high capital quality and the progress in their funding profiles since the global financial crisis, the Australian banks are making good progress toward meeting the Basel III requirements, including the new liquidity standards. Stress tests calibrated on the Irish crisis experience show that the banks could withstand sizable shocks to their exposure to residential mortgages. However, combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks' capital. Therefore, it would be useful to consider the merits of higher capital requirements for systemically important domestic banks.

Subject: Banking, Basel II, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Loans, Residential mortgages, Stress testing

Keywords: Australia, Australia and New Zealand, Bank, Bank capital adequacy, Bank concentration, Bank Nonperforming loan, Basel II, Basel III, Canada, Capital, Capital adequacy requirements, Capital ratio, Disclosure statement, Global, Home country banking sector assets, LGD rate, Loans, Loss given default, Loss-given-default rate, Mortgage, Probability of default, Requiring bank, Residential mortgages, Risk weight, Stress testing, Stress tests, Tier 1, WP

Publication Details

  • Pages:

    20

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/025

  • Stock No:

    WPIEA2012025

  • ISBN:

    9781463932527

  • ISSN:

    1018-5941