"APRA has also moved ahead on the liquidity standard, in conjunction with the Reserve Bank. We have established the Committed Liquidity Facility (CLF) – a mechanism by which the Basel III liquidity standard can be met, in a world in which government debt in Australia is relatively scarce compared with other jurisdictions.
Let me say a little about this facility. It is not a ‘bail-out’ fund for banks. ‘Bail-outs’ usually mean stumping up public funds to inject capital to an institution whose solvency is in question. The CLF does no such thing. It is a facility, for which the institutions concerned will pay a fee, which would provide cash against quality collateral pledged by institutions that the Bank and APRA judge to be solvent. The fee structure is designed to replicate the cost the institutions would incur if there were sufficient ordinary high quality collateral – i.e. government debt – for them to hold to meet the Basel liquidity requirements – which, of course, there is not. If we are to meet the global standards, we either have to have a facility like this, or have the government issue a few hundred billion dollars in extra gross debt so the banks can hold it. The relevant ADIs will pay a fee of 15 basis points per annum for the facility whether they use it or not. If they do use it, any funding will be at an interest rate that is 25 basis points above the market rate. This has been developed openly, and under the scrutiny of the international regulatory community. It was approved by the Reserve Bank Board in November 2010."
