To APRA, the banks' 2% capital reserve against mortgages is not a breach of its minimum requirement of 8%. APRA risk-weights the safest mortgages at 35% (just that percentage deemed to carry any risk, 65% deemed risk-free), requiring 8% capital reserve only against the 35%. Further, APRA doesn’t require the Big Four banks to follow its guidelines, but instead allows them to do their own internal risk assessments. As a result, all mortgages issued by Australia’s banks are actually risk-weighted at an average of 26%—far below APRA’s 35%. The $24 billion capital reserve is 8% of that 26% of the total $1.157 trillion in mortgages. Source: RBA Bulletin; APRA.
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