Commonwealth Bank has claimed that the "conservatism" of the Australian Prudential Regulation Authority imposes a cost on the Australian economy. It has urged the Financial System Inquiry to allow local banks to publish capital ratios that are comparable with international peers, rather than using APRA's conservative treatment of capital.Earlier this months, the Basel Committee on Banking Supervision noted APRA's "more rigorous implementation of the Basel III framework when it came to the definition and measurement of capital."CBA said in submission to the FSI that this treatment created problems for local banks: "As a result of local regulatory adjustments applied by APRA, when the Australian banks approach the capital markets for equity and debt they are perceived as having capital ratios that are up to 4.2 percentage points lower than international peers. "This significantly understates the Australian Banks' strong capital levels and leads to a perception that they are less well capitalised."During a crisis, investors may reduce or exit their investment in Australian banks."CBA has recommended that Australian banks should be allowed to publish capital ratios that are comparable with international peers.CBA has also argued that international standards should only be adopted where the problem which the standards are designed to address exists in Australia. In a wide-ranging submission, the bank has called for measures to improve the depth and liquidity of domestic debt markets, including a review of the rules and caps in relation to bank issuance and investment in the asset-backed securities market. It said APRA should allow full capital relief for ABS issuers and increase the permitted level of covered bond issuance and RMBS through mastertrusts.It said there should be tax incentives to encourage debt investment. And it said it was concerned about the risks created by new entrants operating outside regulation. "Rapid innovation in a highly regulated sector creates an incentive for entrants to employ new business models, some of which may avoid regulation. This will complicate the definition of what constitutes a financial services institution and will create risks that could become systemic weaknesses."