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Connexus : Issue 39
28 Connexus ramp up CARs for a sector which already typically sets ratios that are well above APRA’s minimum total capital ratio of 8 per cent. “ There’s no doubt it will have an impact because any crank-up in the buffers required by APRA will obviously then [bring about] a cor responding crank-up in our own buffers,” says Parsons. “ It’s not as though we can say we are above the minimums now and therefore we can absorb it. From our perspective, and I’m sure from APR A’s, it doesn’t work that way.” reform disquiet Credit unions, mutual banks and building societies are, on the whole, well capitalised. According to the Reser ve Bank of Australia’s June quarterly bulletin, they have aggregate total capital ratios of about 15 per cent compared with roughly 12 per cent for Australian banks. So, in theory at least, the mutual sector seems to have little to worr y about with respect to its CARs. The first milestone in implementing the Basel III reforms in Australia will be on 1 January 2013, when A PR A proposes to introduce a new global minimum requirement for common equity Tier 1 of 4.5 per cent of risk-weighted assets, a minimum requirement for Tier 1 capital of 6 per cent and a total capital ratio of 8 per cent. The second key date is 1 Januar y 2016, when APRA plans to impose a new capital conser vation buffer of 2.5 per cent, taking the minimum requirement for common equity Tier 1, including the new buffer, to 7 per cent. Laker has been upbeat on both fronts, saying there is “no sweat for mutual ADIs – you are already there”. Despite such confidence, there is considerable industr y disquiet about the changes. Peak industr y body Abacus is liaising with its member s over some of the misgivings and has put a case to APRA to accommodate the mutual model in the common equity Tier 1 framework. CEO Louise Petschler says APRA’s str ict stance could leave mutuals relying almost exclusively on retained earnings for Tier 1 regulatory capital. She argues that the changes could stymie the ability of mutual ADIs to grow, diminish their longer-term relevance in the Australian market and are not consistent with Basel III aims. “This is core to our continued growth,” says Petschler, “so it’s not about tr ying to win an advantage. We have faith we will be able to get the engagement we need from APR A to have our issues seen in that way.” Preparing for a marathon “ The fundamental problem is that Basel III has been developed for internationally operating listed banks,” says CEO Louise Petschler. “ With APRA the first adopter of Basel III globally, we’ll be the testing ground for how Basel III can be made to work for mutuals.” Abacus has engaged former World Council of Credit Unions vice-president Dave Grace to provide advice and intelligence on accommodating mutuals in Basel III. Abacus is also drawing on the expertise of specialist legal and technical advisors and international precedents. Petschler is heartened by APRA’s March response paper and believes that industry, government and regulators have sufficient goodwill to find solutions. Abacus insists that final standards for capital must avoid cementing a regulatory competitive advantage for listed ADIs. “ This is too important an issue for us not to succeed. But some of this work will be a marathon, not a sprint.” CoverStory