APRA has told ADIs subject to the liquidity coverage ratio rule that it wants them to reduce their use of the Committed Liquidity Facility to zero by the end of next year. ADIs will have to purchase the high-quality liquid assets necessary to eliminate the need for the CLF.

APRA said that it and the Reserve Bank had determined that, with the significant increase in government and semi-government bond issuance in the past year, there are sufficient high quality liquid assets for ADIs to meet their LCR requirements without the need for the CLF.

Under a prudential rule introduced in 2015, ADIs must maintain an adequate level of high-quality liquid assets that can be converted into cash to meet liquidity needs for 30 days. To determine the appropriate LCR, banks must estimate their net cash outflow over 30 days under stressed conditions, with higher runoff rates to apply to less stable deposits.

An issue for banks at the time was that the stock of high-quality liquid assets (government and semi-government bonds) was not sufficient to meet their needs. To fill the shortfall, the Reserve Bank established the CLF, allowing ADIs to enter into repurchase agreements of eligible securities outside the RBA's normal market operations.

At one point the banks lobbied APRA, asking it to widen its definition of HQLA but they did not get anywhere.

APRA said the CLF will remain available, should it need to be reactivated in future.

APRA’s view is that ADIs should make every reasonable effort to manage their liquidity risk through their own balance sheets.

APRA said the RBA has assessed that the government and semi-government bonds that can be reasonably held by locally incorporated LCR ADIs at the end of 2022 will be around A$560 billion.