The Australian Prudential Regulation Authority (APRA) announced a staged consultation on a package of reforms to banks’ capital and liquidity settings, aimed at uplifting liquidity requirements to better align with international practice while making the capital framework more risk sensitive. The package, outlined by APRA Chair John Lonsdale, will be progressed through separate workstreams covering liquidity, credit risk and market risk. For liquidity, APRA will consider changes for the largest banks including a new Pillar 2 liquidity framework to address risks not captured by existing Liquidity Coverage Ratio minimum requirements, and plans to consult on a more risk-sensitive liquidity framework for smaller banks, with cost savings expected for small banks that rely on more stable funding. On capital, targeted amendments to the standardised framework would better align requirements with underlying risk and are expected to reduce overall capital requirements for some banks, with focus areas including high-quality lending to critical infrastructure projects, corporates without a credit rating and residential property development. For market risk, APRA plans to implement a simplified approach to the Basel Committee’s Fundamental Review of the Trading Book that it expects will better reflect risks in Australia’s banking system and materially reduce compliance costs compared with full implementation; overall, the package is intended to be broadly cost neutral for the industry. Consultation will begin with changes to standardised credit risk weights in the first half of 2026, with subsequent stages to follow under APRA’s indicative consultation timetable for authorised deposit-taking institutions.

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