The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper outlining its proposed implementation of the Basel III capital reforms in Australia.

The discussion paper is a response to a package of measures released by the Basel Committee on Banking Supervision in December 2010, and revised in June 2011, to raise the level and quality of capital in the global banking system.

APRA proposes to broadly adopt the minimum (stricter) Basel III requirements for the definition and measurement of capital for authorised deposit-taking institutions (ADIs) but in some areas it will continue current policies.

APRA also proposes to introduce the new Basel III capital buffer regimes and the leverage ratio.

Following consideration of submissions received on this paper, APRA will undertake a second consultation in early 2012 on the detailed prudential and reporting requirements that will give effect to the Basel III capital reforms in Australia.

APRA is proposing to require ADIs to meet the revised Basel III minimum capital ratios and regulatory adjustments in full from 1 January 2013, and to meet the capital conservation buffer in full from 1 January 2016. APRA will adopt transitional arrangements for capital instruments that no longer qualify as Additional Tier 1 capital or Tier 2 capital. For ADIs that wish to issue capital instruments prior to the new capital standards being finalised and implemented, APRA confirms that its existing guidance (as set out in its letters to ADIs of 17 September 2010 and 27 May 2011) is unaffected by these proposals and remains in force.