Australia's financial regulator has ruled certain assets, including quasi-sovereign bonds, cannot be considered a reliable source of liquidity for banks and financial institutions, taking a harder line than many global peers and dealing a setback to local banks.
The Australian Prudential Regulation Authority (APRA) said in a statement on Monday it will accept cash, balances with the Reserve Bank of Australia, as well as government and semi-government securities as liquid assets, known as Level 1 assets.
This is in line with Basel III's new standards announced in December 2010 by the international banking regulator in a move to ensure banks hold enough liquid assets to survive a major crisis.
However, in contrast with the Basel Committee, APRA will not accept sovereign or quasi-sovereign bonds, commonly called supranational bonds, or corporate bonds because they are not deemed liquid enough in Australia, APRA said.
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