Bank Capital Adequacy in Australia

Niamh Sheridan and B. Jang

No 2012/025, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; bank; capital ratio; disclosure statement; mortgage; Tier 1; Australia; Canada; Basel II; Basel III; capital; loss given default; probability of default; stress tests; risk weight; requiring bank; LGD rate; bank concentration; loss-given-default rate; bank Nonperforming loan; home country banking sector assets; bank capital adequacy; Residential mortgages; Capital adequacy requirements; Stress testing; Loans; Australia and New Zealand; Global (search for similar items in EconPapers)
Pages: 20
Date: 2012-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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