Australia's dependence on commodity exports is one rationale for regulators forcing banks to adopt more stringent standards that in other developed economies, one of APRA's most senior executives told a banking conference yesterday.Adopting a position not often, if ever, articulated by APRA management in prior discussions of their approach to bank regulation, Charles Littrell, executive general manager at APRA, said that "Australia's economic foundations are heavily commodity based, which any global survey of comparable nations will suggest is not automatically conducive to financial stability."It suits Australia well to overlay economic governance that is stronger than the developed world average, if we want to give the Australian people a fair shot at avoiding financial instability and crisis."Littrell did not offer any updates on the forthcoming detail of the Australian variant on the Basel III rules on capital that APRA will announce, but did survey the benefits and some costs that arise from the regulator's approach to its task of supervising the banking industry.He noted that recent drivers of banks' capital planning were largely driven by the market and not by regulators."The very large increase [in bank capital ratios] from 2008 was not driven by any change in the prudential requirements, but by bank responses to demands for more equity cover not only by debt providers, but likely by equity providers too.  "Reducing risk suddenly became more important in the perpetual risk/reward balancing equation. As a result, core equity ratios increased by a third, or two per cent of risk weighted assets."That does not mean, though, that higher levels of minimum capital targets that APRA is considering for Australian banks would not have any affect on the actual level of capital held by banks."APRA takes the view that a change in the regulatory minimum capital requirement for an industry leads to an equivalent change in the average de facto target capital position," Littrell said.However, "it is worth remembering, however, that this is likely the maximum impact, and some regulatory capital requirement increases may not lead to an equivalent increase on actual balance sheets," he added.On liquidity rules Littrell addressed his comments to the liquidity coverage ratio, which comes into force in 2015.He noted that while banks may strive to manage their liquidity in order to avoid using the planned collateralised line of credit that the Reserve Bank of Australia will provide, this may not be realistic."APRA's assessment is that as the banking system moves towards the 2015 LCR introduction, it will not be feasible for the system as a whole, or for any major bank individually, to improve its liquidity so much that the RBA collateralised facility will not be necessary.  "We intend to work with the banks to minimise the use of this facility, but minimal will not equate to zero."Littrell noted an estimate by CBA's chief executive, Ralph Norris, in late 2009 that the emerging liquidity rules would result in a rate rise of four to seven basis points, and said that "after a year and a half of Basel