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The regulator is updating Prudential Standard APS 210, which deals with liquidity risk management, to ensure it meets principles set by the Basel Committee on Banking Supervision in response to the global financial crisis.
Under the plan, authorised deposit-taking institutions will have to hold far more capital and liquid assets, and be more transparent about these holdings.
But the thing that has online brand owners worried is the assertion by APRA that Internet accounts are less stable sources of funding than branch-based accounts.
APRA is calling for an extra 30 per cent runoff for Internet deposits under the proposed new stress testing methodology.
The changes will have far reaching implications for online savings providers, particularly those that rely heavily on Internet sourced deposits for funding, such as ING Direct.
Bankers say the proposed revisions to the standard will be bad for competition – at a time when the big four banks hold more than 75 per cent of all retail deposits.
They also argue splitting out Internet accounts makes little sense given most customers use multiple channels.
The changes could see the viability of the entire online savings market challenged. In the same way interchange reform led to a rethink of credit card products, treating Internet deposit products differently for liquidity purposes could result in a reduction of products on offer, and pressure on already tight margins in deposits.
APRA is currently in consultation with the industry and will release a revised draft APS 210 for further consultation early in 2010.
What do you think? The global trend towards more transparent liquidity reporting is warranted, but will it drive unintended consequences?
2 comments:
Unfortunately APRA is tackling the wrong problem. They want to make sure that if depositors have a run on a bank by taking all their deposits out at the same time there is money available to cover the "run". Why is this a problem? It is a problem because the money may have been used as backing for another loan and that will then cause the other loan to be called in. Because of fractional reserve banking there is a lot more money to be called in than was originally deposited.
A solution to the problem is to stop banks using cash deposits as backing for the creation of other loans and hence other money. In other words let banks only lend the money they have on deposit and get rid of fractional reserve banking.
Now you will say how can we now create money to loan? Well there are other ways that are economically responsible and practical to implement. We should not continue with a system that has proven to be unreliable.
I think once again APRA has lost the plot. There should no additional capital requirements purely because of the account being an internet accessible account. The account is in essence an on demand account from a consumers perspective and should be treated the same.
Seems to me APRA should be focusing on the quality and soundness of the institutions offering deposit facilities for customers, rather than the channel the client uses to access 'on demand deposits'
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