MEDIA RELEASE No: 96-07 Date: 11 June 1996 Embargo: For Immediate Release

PRIME ASSETS REQUIREMENT

The Reserve Bank is currently working with the industry to introduce a system of real time gross settlement (RTGS) for high value interbank payments late in 1997.

In order to allow market participants to prepare for the introduction of RTGS, the Bank has adopted the practice of announcing any procedural changes well in advance of implementation. In keeping with this policy, the Bank is announcing today a change to the Prime Assets Requirement (PAR), which will become effective when RTGS is introduced.

Under PAR at present, banks hold specified prime assets equal to at least 6 per cent of their total liabilities (excluding shareholders' funds) at all times. The purpose of this is to ensure that banks have a quantity of high quality assets which may be liquidated, with Reserve Bank agreement, in an emergency situation. Under the new arrangement, banks will be able to use prime assets to provide within-day liquidity (through repurchase agreements with the Reserve Bank), but will still need to meet PAR at the end of the day. This change is intended to give banks additional flexibility for within-day management of their liquidity to facilitate the smooth processing of payments when RTGS is introduced.