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“The recent strengthening of the system, much of which is already in place, will protect bank viability against an extreme stress event (modelled 1:5,000 probability),” the ANZ submission says.
That regulatory strengthening already implemented or planned will protect a capital level of 5.125 per cent against that extreme, one in 5000 year event. ANZ argues the introduction of “bail in” provisions, forcing bond holders to carry the risk in terms of a bank failure, is a more economically rational approach although it still comes at a cost.
“Efficient, low cost measures can be taken to improve system resilience including robust stress testing and more pre-planning for stress events,” ANZ says.
ANZ does not believe there should be any weakening of current risk measures but recognises smaller banks may struggle to resource the internal models necessary to obtain capital relief. The bank believes there may be a role for regulators to help some banks achieve this more advanced status under Basel requirements without weakening system security.