Australia’s prudential regulator plans to replace banks’ hybrid capital Reuters

(Reuters) – Australia’s prudential regulator proposed on Tuesday to replace bank hybrid bonds with more reliable and less expensive forms of capital, as rising holdings of hybrid securities among retail investors pose a risk to financial stability.

The Australian Prudential Regulation Authority (APRA) sought feedback from the industry after issuing a discussion paper in September 2023 because it was concerned about the high ownership of banking hybrids by local retail investors.

The regulator plans to simplify the use of Additional Tier 1 (AT1) capital instruments, often called hybrid bonds, to improve and simplify bank capital efficiency in times of crisis, it said in a statement.

APRA has stepped up efforts to strengthen Australia’s financial system, seeking to protect depositors’ funds, amid growing market concerns that hybrids may not be able to protect the country’s economic system because they are mainly owned by smaller investors.

Australia’s “Big Four” banks – Commonwealth Bank of Australia (OTC:), National Australia Bank (OTC:), Westpac and ANZ Group – did not immediately respond to Reuters’ request for comment.