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APRA Issues Stern Warning To Australian Deposit Taking Institutions
The Australian Prudential Regulation Authority, the country’s banking regulator has issued a stern warning to Australian deposit taking institutions.
APRA is unhappy with the way some firms account for and treat subordinated tranches of residential mortgage-backed securities, warning that some firms may have to change the way they do so.
The banking regulator on Thursday re-affirmed the standards used for capital treatment of RMBS, but as it moved to do so warned some mortgage lenders they would have to change their ways.
In the wake of the global financial crisis, some deposit taking institutions in Australia have been able to divest senior tranches of Residential Mortgage Backed Securities at a significantly improved price, but have been forced to hold on to subordinated tranches on their books.
According to APRA, some deposit-taking institutions “have concluded appropriately that such a structure fails to meet the fundamental requirement for significant credit risk transfer and have retained the requisite risk assets and capital requirements on their balance sheets. In other cases, however, . . . regulatory capital relief for credit risk has been claimed inappropriately.”
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