The Australian Prudential Regulation Authority (APRA) has released a paper that sets out its responses to submissions on
its proposals to implement the advanced approaches under the new Basel
II capital adequacy regime, known as the Basel II Framework.

APRA’s
response paper addresses issues raised in submissions and is
accompanied by three final draft prudential standards and their
respective prudential practice guides that incorporate a number of
amendments suggested in the consultation process. (Download here)

The final draft prudential standards cover:

• the internal ratings-based approach to credit risk [first release in July 2005];
• the advanced measurement approaches (AMA) to operational risk [second release in October 2006]; and
• the treatment of interest rate risk in the banking book [first release in March 2006].

ADIs
will need to obtain APRA’s approval to use these advanced approaches.
The vast majority of ADIs – banks, building societies and credit unions

The
proposals form part of the Basel II capital adequacy regime for ADIs
that will come into force on 1 January 2008. The full suite of Basel II
prudential standards is expected to be finalised in late 2007.

Comments on the response paper, the final draft prudential standards APS
113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk,
APS 115 Capital Adequacy: Advanced Measurement Approaches to
Operational Risk and APS 117 Capital Adequacy: Interest Rate Risk in
the Banking Book, and their respective prudential practice guides are invited by 27 July 2007.