In The AFR today I review a significant new speech by APRA's impressive boss, Wayne Byres, who cautions that the major banks' capital ratios will have to rise "somewhat higher"---contrary to claims they are done and dusted. Interestingly, Byres also said APRA would work to enhance "competition" where it can, which should be good news for the majors' rivals. APRA has already announced it will help fast-track smaller banks towards the majors' much more advantageous risk-weight and capital levels, which have been a key driver of their superior returns on equity. Two major focuses for APRA in 2016 are capital and working out how Australia will customise its Total Loss-Absorbing Capacity (TLAC) regime (Byres reiterated on Friday that APRA will sensibly "hasten slowly" on TLAC). Here I examine a report by CreditSights, which argues that the major banks are having a fundamental "rethink" on their preferred TLAC approach. The majors appear to be converging towards "statutory" as opposed to "contractual" solutions that involve senior (or some derivation of senior) rather than subordinated bond bail-in. Read for free here (VIEW LINK)
Christopher Joye is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.