APRA
Basel II Framework – Margin Lending And EACIs
APRA has released its proposed Basel II approach to margin lending, and draft guidelines for the recognition of external credit assessment institutions (EACIs).
The proposed margin lending requirements relate to the risk-weight for capital requirements for authorised deposit-taking institutions involved in margin lending activities. Although under the Basel II framework margin lending exposures attract a 'zero capital requirement', APRA has proposed an interim 20% risk-weight for liabilities secured by listed equity investments. Other exposures will be considered as secured loans for risk-weight calculation purposes.
The draft guidelines set out the criteria of objectivity, independence, transparency, disclosure, resources and credibility that an EACI must satisfy to be recognised by APRA. Under the prudential framework, banks can only use the risk assessment of recognised EACIs when calculating their capital requirement.
