While these rules aim to ensure banks maintain sufficient liquidity to prevent another 2008-style crisis, majors like Commonwealth Bank and ANZ use a quasi-self-regulated ‘internal ratings-based’ approach, whereas mid-tier banks, without access to large-scale risk-management teams, follow a standardised, invariably costlier, approach.
Announcing the three-tiered approach among other reforms earlier this month, APRA chair John Lonsdale said: “Cumulatively, we believe these measures strike a sensible balance between lowering the regulatory burden for banks while ensuring banks of all sizes have the financial and operational resilience to protect their depositors.”
APRA’s announcement about introducing additional tiering was welcomed by Lawrence, who said COBA has been advocating for this change “for a long time” (including in its submission to the Council of Financial Regulator’s Review into Small and Medium-sized banks).
It is unlikely to impact the continued trend of consolidation though, and ensuring COBA’s members are sustainable through these challenges “goes to the heart of a lot of the advocacy work we do”, Lawrence said.
When two mutuals merge
When it comes to credit policies, COB mergers work in the same way as any other bank merger. Generally speaking, when a smaller entity merges with a larger one, the policies of the latter will remain.