## Bank Capital Adequacy in Australia

_IMF Working Papers, January 1, 2012_

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## Bibliographic details
- Authors: Niamh Sheridan, B. Jang
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463932527.001

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### Executive findings
- Given Australia's conservative approach in implementing the Basel II framework, Australian banks' headline capital ratios underestimate their capital strengths.
- Australian banks have high capital quality and have made progress in their funding profiles since the global financial crisis.
- 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.
- Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks' capital.
- It would be useful to consider the merits of higher capital requirements for systemically important domestic banks.

### Stress-testing scenarios and outcomes
- Calibration: stress tests calibrated on the Irish crisis experience.
- Scenario A: sizable shocks to exposure to residential mortgages — result: banks could withstand these shocks.
- Scenario B: residential mortgage shocks combined with corporate losses expected at the peak of the global financial crisis — result: greater pressure on banks' capital; potential need for higher capital buffers for systemically important domestic banks.

### Policy implications and recommendations
- Continue progress toward full implementation of Basel III requirements, including new liquidity standards.
- Consider the merits of higher capital requirements for systemically important domestic banks to bolster resilience under combined shock scenarios.
- Monitor funding-profile improvements and maintain high capital quality to support resilience against mortgage and corporate loss scenarios.

### Publication and metadata
- Title: Bank Capital Adequacy in Australia
- Authors: Niamh Sheridan, B. Jang
- Date: January 1, 2012
- Series: Working Paper No. 2012/025
- Issue: 025
- Volume: 2012
- Pages: 20
- DOI: https://doi.org/10.5089/9781463932527.001
- Stock No: WPIEA2012025
- ISBN: 9781463932527
- ISSN: 1018-5941
- Subjects: 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

*IMF Working Paper "Bank Capital Adequacy in Australia" by Niamh Sheridan and B. Jang, January 1, 2012.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/bank-capital-adequacy-in-australia-25667_