APRA phases out reliance on Committed Liquidity Facility

The Australian Prudential Regulation Authority (APRA) expects locally-incorporated ADIs subject to the Liquidity Coverage Ratio (LCR) to reduce their reliance on the Committed Liquidity Facility (CLF) to zero by the end of 2022 subject to financial market conditions.

The LCR is a minimum requirement that aims to ensure ADIs maintain sufficient unencumbered high-quality liquid assets (HQLA) to survive a severe liquidity stress scenario lasting for 30 calendar days. The CLF, which was established with the Reserve Bank of Australia (RBA) in 2015, is intended to be sufficient in size to compensate for the lack of sufficient HQLA, which in Australia consist of notes and coin, Exchange Settlement Account (ESA) balances held with the RBA, Australian Government Securities (AGS) and semi-government securities (semis).

In a letter to applicable ADIs today, APRA has advised that use of the CLF should no longer be required beyond 2022 because APRA and the RBA expect there to be sufficient HQLA for ADIs to meet their LCR requirements without the need to utilise the CLF.

APRA expects ADIs to purchase the HQLA necessary to eliminate the need for the CLF. Specifically, no ADI should rely on the CLF to meet its minimum 100 per cent LCR requirement from the beginning of 2022 (although ADIs may continue to count any remaining CLF as part of their liquidity buffer). ADIs should then reduce their use of the CLF to zero by the end of 2022.

APRA will continue to review financial market conditions, and will adjust these expectations should circumstances materially change. The CLF will remain available should it need to be reactivated to meet future shortfalls in the availability of HQLA.

APRA's letter to all locally incorporated LCR ADIs is available on the APRA website at: Committed Liquidity Facility update.