Banks must lift quality of capital reporting: FSI member

Australian Financial Review Mar 6 2017 4:16 PM

James Eyers

One of the members of the government's financial system inquiry, Professor Kevin Davis, says the reporting of regulatory capital by banks is too slow and the data is hard to access, making it difficult for the public to compare the relative safety of Australia's banks.

As a parliamentary committee considers forcing banks to deliver customer data in an easy-to-access format to encourage competition, Professor Davis has examined bank disclosures of capital levels – core data showing the size of the buffer banks have to absorb losses.

"Unfortunately, the Basel disclosures do not really meet conditions of easy access, comparability and timeliness, which might facilitate greater and better analysis of our banks," Professor Davis said in a financial policy brief published by the Australian Centre for Financial Studies and Monash Business School.

The study also found quarterly disclosure of capital levels, via so-called "Pillar 3" reports, is provided to the market so late as to be effectively useless. The banks have 40 days to produce this report; the average reporting delay is about 39 days.

The Australian Prudential Regulation Authority "should consider whether the time lag allowed for regulatory disclosures is appropriate, and whether increased frequency of some disclosures is a feasible option", Professor Davis said.

On the presentation of the capital levels, the information is generally presented on websites based on a common template provided by APRA, but coding or formatting means it isn't always possible to cut and paste the data into a spreadsheet or other data management software. "This is easy to fix, and could create the suspicion that many banks don't want to make it easy for analysts or researchers to study the data," he said.

Of nine of the biggest banks included of the study, only Commonwealth Bank of Australia allowed for easy data extraction, he said. He called for APRA to require banks provide capital instrument disclosure in a way that makes it easy to extract.

The findings by Professor Davis comes as the Basel Committee on Banking Regulation met last week. Stefan Ingves, chairman of the committee, said in a statement over the weekend the committee "has made further progress" towards the finalising reforms to the risk-weighted asset framework that analysts have been called Basel IV but the Basel committee says is the finalisation of Basel III.

"The differences [between jurisdictions], where they remain, have narrowed and work continues to reach an agreement," he said.

"While the finalisation of Basel III will take longer than originally expected, the committee remains determined to reach agreement on the remaining elements, and recognises the importance of providing clarity and certainty to all market participants."

APRA chairman Wayne Byres told a Senate Estimates hearing last week that while APRA had held off taking action on the first recommendation of the financial system inquiry – ensuring capital ratios of banks are "unquestionably strong" – until the work by the Basel committee had been completed, "delays to the work in Basel mean we don't think we should wait any longer".