The Australian Prudential Regulation Authority released Thursday a discussion paper on proposed liquidity coverage ratio requirements of the new Basel III rules.

The rules, agreed upon by international negotiators and scheduled to be implemented gradually over the next eight years, set targets for banks to hold more liquid assets in the form of sovereign debt.

However, it is a major cause of concern in Australia because of the relative scarcity of government bonds.

APRA and the Reserve Bank of Australia proposed a secured liquidity facility for Australian banks to help them comply with the new Basel requirements, which Australia plans to put in place two years ahead of Basel III's timeline. The planned committed secured liquidity facility would be sufficient in size to cover any shortfall between its holdings of high-quality liquid assets and a liquidity cover ratio requirement.

APRA said it will release the final reforms for Australian banks by the middle of 2012.

In response to the release of the discussion paper, the Australian Bankers' Association said it looks forward to detailed consultation with APRA and the RBA on the implementation of the Basel III liquidity reforms.

"We acknowledge APRA's objective of strengthening the resilience of banks and other financial institutions to liquidity risk. The resilience of Australian banks has been a significant attribute of the Australian financial system since the global crisis, and the Basel III reforms will enhance the liquidity profile of the global banking system," ABA Chief Executive Steven Munchenberg said in a statement.

"It is very important the Basel reforms are adopted globally and that the Australian framework takes into account the application of Basel III in other geographies, and any changes to the rules during the observation period. This will ensure that global resilience is enhanced and that no country or national banking system is disadvantaged by taking on the more stringent Basel requirements earlier than its major trading partners. We note the recent Basel Committee implementation report on Basel III, which indicates there is still a lot of work to be done," he added.

APRA will continue to receive comments on the consultation paper until February.

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