The Australian Prudential Regulation Authority may be softening its tough stance on post-financial crisis regulation, saying it is open to negotiation on a number of issues with the industry before the local version of Basel III takes its final form.Speaking at a Financial Services Institute seminar in Sydney yesterday, APRA's executive general manager for the diversified institutions division, Wayne Byres, said the regulator acknowledged that if it kept adding capital requirements on top of international rules it would reach a point where the effect would be detrimental.Byres said: "We are not saying we will stick with everything we have now. Nor are we saying we will move into line with Basel III."Basel III is silent on the interaction of the new rules with our existing provisions. That is what the consultation will be about."APRA imposes tighter rules than the current Basel II regime requires. For example, it has never allowed a local bank to get down to the minimum two per cent of equity capital the international capital adequacy rules allow.It also requires Australian banks to deduct superannuation fund surpluses from capital, which is not required by other jurisdictions.Since the financial crisis, APRA has argued that its tighter supervision was responsible for the relatively good outcome experienced by the local banking system.But yesterday Byres said there was more to good regulation than tight capital requirements. "Most countries implemented Basel II. The rules are only one part of the system. Supervision is a key difference.He confirmed APRA's timetable for the implementation of Basel III. The transition to new capital requirements will start in 2013, with the new Tier 1 standard to take effect in 2015 and the capital conservation buffer in 2019. By the middle of this year APRA hopes to have a local standard for the Basel III rules in the public domain. It will have a three-month consultation in the second half of the year and then issue draft standards early in 2012.It hopes to finalise these standards by the middle of next year.Byres said: "We don't see the need for major capital raisings by the banks. We see the local industry meeting the new requirements through earnings' retention and organic capital growth."He said the liquidity rules - the liquidity coverage ratio and the net stable funding ratio - would be more challenging. He was not able to reveal the pricing of the Reserve Bank's liquidity facility (which is being put in place to make up for the shortfall in government securities in the Australian market).He held out the prospect that highly rated corporate debt securities could be included as Tier 2 liquid assets, but said that at this stage the market was not deep enough to rely on this."The Australian industry does not meet the net stable funding ratio test. Our view is that there is nothing about Australia that justifies special solutions. We will have to adjust."