Making headlines today, Australia’s Prudential Regulation Authority (APRA) chairman John Laker has pledged to take a tough line in applying new global banking rules to Australia's banks.
Despite concerns that the new rules will force banks to lift their mortgage rates above the Reserve Bank, Mr Laker told The Australian Financial Review that he would apply the new Basel III rules to the letter.
In recent weeks there has been talk that the new Basel III rules could push up funding costs further, in turn causing the banks to raise their mortgage rates out of cycle with the RBA.
But Mr Laker said banks would just have to deal with the consequences, as he attempts to ensure banks build up enough short term buffers to prepare for the next financial crisis.
Under the new banking rules, Australia’s financial institutions will also be expected to replace short term loans with more costly and stable long term funding and increase their holdings of liquid commonwealth and state government bonds.