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Reserve Bank Adjusts the Committed Liquidity Facility

Summary:
Following a review, the Reserve Bank has assessed that Authorised Deposit-taking Institutions (ADIs) using the Committed Liquidity Facility (CLF) can increase their holdings of high quality liquid assets (HQLA) from 25 to 30 per cent of the stock of HQLA securities. This change is possible because the volume of HQLA securities has risen over recent years. To minimise the effect on market functioning, the increase will occur at a pace of 1 percentage point per year until 2024, commencing with an increase to 26 per cent in 2020. The Reserve Bank has also assessed that the CLF fee should be increased from 15 to 20 basis points per annum on the size of the commitment to each ADI. The fee is set so ADIs face similar financial incentives to meet their

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Following a review, the Reserve Bank has assessed that Authorised Deposit-taking Institutions (ADIs) using the Committed Liquidity Facility (CLF) can increase their holdings of high quality liquid assets (HQLA) from 25 to 30 per cent of the stock of HQLA securities. This change is possible because the volume of HQLA securities has risen over recent years. To minimise the effect on market functioning, the increase will occur at a pace of 1 percentage point per year until 2024, commencing with an increase to 26 per cent in 2020.

The Reserve Bank has also assessed that the CLF fee should be increased from 15 to 20 basis points per annum on the size of the commitment to each ADI. The fee is set so ADIs face similar financial incentives to meet their liquidity requirements through the CLF or by holding HQLA. To minimise the effect on market functioning, the increase will occur in two steps, with the CLF fee rising to 17 basis points on 1 January 2020 and to 20 basis points on 1 January 2021.

The Reserve Bank will provide further information about these adjustments in a speech to be scheduled in July.

Background

Since January 2015, the Reserve Bank has provided the CLF as part of Australia's implementation of the Basel III liquidity reforms. Under APRA's liquidity standard, ADIs that are required to meet the liquidity coverage ratio (LCR) need to hold enough HQLA to be able to respond to an acute stress scenario. The Australian dollar securities that have been assessed by APRA to meet the requirements to be HQLA are Australian Government Securities (AGS) and securities issued by the central borrowing authorities of the states and territories (semis). The CLF is required because of the limited supply of AGS and semis, reflecting relatively low levels of government debt in Australia.

As an alternative to holding HQLA to meet the LCR, ADIs can apply to APRA to establish a CLF with the Reserve Bank. This enables them to access a set amount of liquidity from the Reserve Bank under repo against eligible securities as collateral. These ADIs are required to meet several conditions, including paying the CLF fee. Each year, APRA sets the total size of the CLF by taking the difference between the liquidity requirements of the CLF ADIs and the amount of HQLA securities that the Reserve Bank assesses can be reasonably held by the CLF ADIs without unduly affecting market functioning. For more information, see Domestic Market Operations.

Reserve Bank Australia
The Reserve Bank of Australia (RBA) came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank. The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions. It currently consists of the Payments System Board, which governs the payments system policy of the bank, and the Reserve Bank Board, which governs all other monetary and banking policies of the bank.

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