Australian banks have to apply tough new rules

Australia's banking regulator has shot down expectations among local lenders that they may escape the worst of tough global banking rules now being planned.

The Australian Prudential Regulation Authority said there would be no local exemptions from rules aimed at preventing future financial shocks, and it would not automatically water down existing local bank rules if the new global proposals fell short.

If Australia's bank regulations did not meet the new standards, the authority pledged to operate under the tougher rules.

Since the financial crisis, leaders from the Group of 20 nations have demanded tougher rules for banks. In turn the Basel Committee, a global banking regulator, is developing a series of standards aimed at making banks safer.

Among them are requirements that banks boost their holdings of top-rated government bonds, introduce limits to bank leverage, and top up capital buffers during good times.

But local banks say they should be exempt from some of the changes because they emerged from the crisis relatively unscathed.

There is also concern that Australia's relatively small government bond market will mean banks will struggle to secure enough liquid assets to meet the new standards. Some analysts have estimated the big local banks would soak up almost all the supply of federal and state government bonds.

But in an update to the banking sector over the new global rules being developed, the executive general manager of the Australian Prudential Regulation Authority, Wayne Byres, told a forum in Sydney there would not be any exemptions for Australia in the Basel reforms.

While there was an opportunity for Australia to have ''slightly different'' rules to reflect local conditions, any changes must be in the form of an equivalent alternative.

''There is no capacity for Australia to argue that we should have weaker rules than the rest of world,'' he said.

''The rest of the world wouldn't give us that concession and we wouldn't ask for it. It's still our responsibility to come up with a framework that is equivalent to what the rest of the world is doing''.

Mr Byres said there was still some way to go before the rules were finalised, but some broad proposals are expected to be ready by the G20 summit in November.

- © Fairfax NZ News