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Australia's bank capital targets monitored by the Australian Prudential Regulation Authority (APRA) are some of the strictest on the planet.
But with the world as it is today APRA has decided to loosen things up a little bit and is letting banks eat into some of their large reserves to encourage lending.
APRA's announcement this afternoon states that the regulator would let banks slide if they were to not meet the benchmark capital requirements for the duration of the Covid-19 disruption.
According to chair APRA chair Wayne Byres (pictured) the strict benchmarks imposed by the regulator are designed to ensure banks can manage in a time of crisis, much like the one we are in today.
"APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so," says Byres.
"As a result, the Australian banking system is well-capitalised by both historical and international standards.
"APRA's objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this. Today's announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements."
The benchmarks, imposed back in 2017, are regarded internationally as exceptionally strong. So strong in fact that many banks have been forced to raise significantly more capital than would otherwise be required for investments in order to maintain the benchmarks.
The highest quality form of capital, Common Equity Tier 1 capital, reached $235 billion at the end of 2019, meaning banks are typically maintaining capital levels well above these minimum regulatory requirements already.
Read more: RBA cuts cash rate to all-time low
APRA's announcement comes in conjunction with the Reserve Bank of Australia's (RBA) decision to cut the cash rate to an all-time low of 0.25 per cent in a bid to keep the country's economy ticking.
APRA hopes banks will take advantage of the new facilities announced today by the RBA to promote the continued flow of credit.
RBA's latest move included additional funding support for SMES, which will be worth at least $90 billion, and is intended to improve liquidity.
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