Three banks found improperly reporting funding stability

Three banks have been asked by the Australian Prudential Regulation Authority (APRA) to tighten their intra-group funding arrangements for their Australian operations following a funding review.

Macquarie Bank, Rabobank Australia and HSBC Bank Australia were notified the reporting of their intra-group funding as stable was in breach of the prudential liquidity standard.

APRA found these banks were improperly reporting the stability of the funding they received from other entities within the group. This included provisions in their funding arrangements that could potentially have allowed group funding to be withdrawn in a stress scenario which would have undermined the stability of the Australian bank.

As a result, APRA required the three banks to strengthen their intra-group arrangements in ensure this group funding could not be withdrawn. It also required them to restate their past funding and liquidity ratios to provide transparency.

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APRA said it was also considering the imposition of higher funding and liquidity requirements for these firms.

Deputy chair of APRA, John Lonsdale, stressed, while the three banks were financially sound, any group funding agreements must be ‘watertight’.

“Macquarie Bank, Rabobank Australia and HSBC Australia are financially sound, with strong liquidity and funding positions in the current stable environment,” he said.

“However, to ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed.”