Deposits with banks, credit unions and building societies are debts owed by those authorised deposit-taking institutions (ADI’s) to the depositors.

Accordingly APRA’s liquidity standards are critical to ensuring that withdrawals can be paid when demanded.

APRA notes that certain types of deposit accounts demonstrate higher levels of liquidity risk than other deposit accounts. It assesses deposit account terms and how they influence depositor behaviour.

APRA has announced some findings of its consistency review across 14 large ADIs to determine whether they were taking a consistent approach to the interpretation and application of key terms in APS 210 Liquidity (APS 210) relating to the required Liquidity Coverage Ratio (LCR).

Because of inconsistencies APRA has made it clear that the term “retail” should be read to include qualifying SME customers/deposits.

The Financial Claims Scheme provides depositors in ADIs with protection up to the limit of the scheme ($250,000 per account-holder per ADI, in relation to prescribed protected accounts).

APRA has stated that:

• Different rules apply if a deposit is “stable”. To qualify as ‘stable’, a deposit needs to be fully insured by the Financial Claims Scheme and meet either the ‘established relationship’ or ‘transactional account’ criteria.
• the threshold for a new customer to meet the definition of ‘established relationship’ should be reviewed by ADI’s. APRA says that while the number and type of products are relevant considerations, APRA considers better practice is to adopt a multi-faceted approach, which includes a minimum relationship length (for example 12 months) and consideration of the relationship strength for determining the existence of an ‘established relationship’. In addition, where an ADI has an internal definition of a customer for whom the ADI is its single ‘prime’ or ‘main bank’, it may be appropriate to consider this in its definition of ‘established relationship’.
• The results of the review indicate that tests applied by ADIs for ‘transactional account’ generally fell into two categories; a ‘product feature’ test (e.g. no specified term, multiple means of access to the account) and an ‘active use’ test (e.g. one or more transactions in the last month). APRA accepts that where a deposit is in a product designed to be a transactional account, and is non-interest bearing or pays a rate of interest significantly below similar products with the same ADI, then it may be appropriate to classify such accounts as ‘transactional accounts’. However, APRA considers that better practice is to incorporate both product features and an ‘active use’ test that considers not just the number but also the nature of transactions.

In discussing whether accounts are “less stable” APRA has considered online accounts and rate driven accounts:

• Online accounts: unless the on-line features of the account are such that the propensity for withdrawal materially increases, such as where the primary means for withdrawal is via transfer to an external account at another ADI, APRA accepts that a small proportion of accounts may be defined as an ‘on-line account’.
• ADIs should consider whether some of their term deposits are at times heavily rate driven, particularly if term deposit rates are increased for the primary purpose of attracting new customers or increased balances from existing customers. If an ADI determines that a term deposit is heavily rate driven, it should be classified as such for whatever period the term deposit impacts the LCR.

Separately the Corporations Act 2001 gives regulatory relief to “basic deposit products”.