|Date||16 November 2011|
|Embargo||For Immediate Release|
The RBA Committed Liquidity Facility
As foreshadowed last December, the Reserve Bank will provide a committed liquidity facility (CLF) as part of Australia's implementation of the Basel III liquidity reforms. Details of APRA's proposed implementation of the Basel III liquidity standard are being released concurrently with this announcement. For further details see Implementing Basel III liquidity reforms in Australia.
The facility, which is required because of the limited amount of government debt in Australia, is designed to ensure that participating authorised deposit-taking institutions (ADIs) have enough access to liquidity to respond to an acute stress scenario, as specified under the liquidity standard.
The Committed Liquidity Facility
The CLF will enable participating ADIs to access a pre-specified amount of liquidity by entering into repurchase agreements of eligible securities outside the Reserve Bank's normal market operations. To secure the Reserve Bank's commitment, ADIs will be required to pay ongoing fees. The Reserve Bank's commitment is contingent on the ADI having positive net worth in the opinion of the Bank, having consulted with APRA.
The facility will be at the discretion of the Reserve Bank. To be eligible for the facility, an ADI must first have received approval from APRA to meet part of its liquidity requirements through this facility. The facility can only be used to meet that part of the liquidity requirement agreed with APRA. APRA may also ask ADIs to confirm as much as 12 months in advance the extent to which they will be relying on a commitment from the Bank to meet their LCR requirement.
In return for providing commitments under the CLF, the Bank will charge a fee of 15 basis points per annum, based on the size of the commitment. The fee will apply to both drawn and undrawn commitments and must be paid monthly in advance. The fee may be varied by the Bank at its sole discretion, provided it gives three months notice of any change.
Securities that ADIs can use under the CLF will include all securities eligible for the Reserve Bank's normal market operations. In addition, for the purposes of the CLF, the Reserve Bank will allow ADIs to present certain related-party assets issued by bankruptcy remote vehicles, such as self-securitised residential mortgage-backed securities (RMBS). This reflects a desire from a systemic risk perspective to avoid promoting excessive cross-holdings of bank-issued instruments. Should the ADI lack a sufficient quantity of residential mortgages, other ‘self-securitised’ assets may be considered, with eligibility assessed on a case-by-case basis.
The Reserve Bank has discretion to broaden the eligibility criteria and conditions for the various asset classes at any time. The Bank will provide one years notice of any decision to narrow the criteria for the facility.
For the CLF, the Bank will purchase securities under repo at an interest rate set 25 basis points above the Board's target for the cash rate, in line with the current arrangements for the overnight repo facility.
The initial margins that the Reserve Bank will apply to eligible collateral will be the same as those used in the Bank's normal market operations. Consistent with current practice, each day the Bank will re-value all securities held under repurchase agreements at prevailing market prices.
Subject to the ADI having positive net worth, the Reserve Bank will give at least 12 months notice of any intention to terminate the CLF. The Bank's commitment to any individual ADI will lapse if the fee is not paid.
The CLF will commence from 1 January 2015, concurrently with APRA's implementation of the LCR. The final details of the Bank's CLF will be released well before that date.
Dr Guy Debelle
Assistant Governor (Financial Markets)
Reserve Bank of Australia
Phone: +61 2 9551 8200
Reserve Bank of Australia
Phone: +61 2 9551 9720
Fax: +61 2 9551 8033