The Australian Prudential Regulation Authority (APRA) has confirmed it will phase out the use of Additional Tier 1 (AT1) capital instruments to simplify and improve the effectiveness of bank capital in a crisis. Background.
APRA has announced a timeline for transitioning to the updated framework over the next eight years.
There will be no overall increase in capital requirements for banks.
Under APRA’s proposed approach:
• Large, internationally active banks will be able to replace 1.5 per cent AT1 with 1.25 per cent Tier 2 and 0.25 per cent Common Equity Tier 1 (CET1) capital.
• Smaller banks will be able to fully replace AT1 with Tier 2, with a reduction in Tier 1 requirements.
• APRA’s requirements applicable to internationally active banks will remain in line with international minimum standards.
APRA intends to finalise changes to prudential standards before the end of 2025, with the updated framework to come into effect from 1 January 2027.
Although APRA expects banks with surplus AT1 to replace it with Tier 2 Capital at their next call dates, APRA will consider requests to replace existing AT1 where the replacement does not increase the current level of AT1 capital instruments or extend call dates beyond 2032.
Capital requirements for insurers will remain unchanged.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
