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IMF urges Aus banks on liquidity ratio

Monday 8 August 2011 - by Nicola York

Australia should introduce key liquidity requirements ahead of the Basel III deadline according to the International Monetary Fund.

In its country report, the IMF says Australian banks could come under funding pressure from disruptions in global capital markets and should consider introducing a net stable funding ratio requirement ahead of the 2018 Basel schedule.

It says authorities should consider introducing higher capital requirements for systemically important banks in the domestic market.

Published on Saturday, the report also urges the country to analyse the appropriate requirements over the next year and discuss them with the IMF in its 2012 financial sector stability assessment.

The IMF says that Australian banks were resilient to the global financial crisis partly because of sound regulation and supervision. But is says that challenges remain as banks may be tempted to take on riskier strategies in a lower credit growth environment.

It also says that concentration in the banking sector has increased following the crisis as the assets of the four largest banks now comprise about 75 per cent of total bank assets.

The IMF says: "The risks outlined above underline the importance of continued rigorous prudential bank supervision by the Australian Prudential Regulation Authority.

"The government should ensure that APRA's capacity keeps pace with emerging risks. We support APRA's plan to undertake more comprehensive stress tests of banks than in 2009/10, including stress tests incorporating a disruption to funding markets."

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