In this Financial Policy Brief, Professor Kevin Davis and Andrew Zhang examine the likely efficacy of the Basel 3 disclosures which are required of Australian banks. They argue that while compliance is observed, the presentation of disclosures is not likely to be helpful in achieving the objectives which the Basel Committee (and APRA) had in introducing disclosure requirements. Some simple, low cost changes to the disclosure practices are recommended.
Following the Global Financial Crisis, the Basel Committee announced in 2010 (as part of Basel 3) increased disclosure requirements for banks. These were designed to address substantial gaps in publicly available information about banks’ practices and conditions. With such gaps, effectiveness of the “third pillar” of the Basel framework for banking strength and stability, that of market discipline, was seriously undermined. (The “third pillar” disclosure requirements were initially announced in 2004 as part of Basel 2 and subsequently revised). APRA has adopted the Basel 3 disclosure requirements in its Prudential Standard APS 330 Public Disclosure, which initially came into effect on 30 June 2013 and which has since been broadened in its scope.
This FPB was prepared by Professor Kevin Davis, Research Director at the Australian Centre for Financial Studies and Andrew Zhang.
The ACFS Financial Policy Brief series provides independent analysis and commentary on current issues in financial regulation, with the objective of promoting constructive dialogue among academics, industry practitioners, policymakers and regulators and contributing to excellence in Australian financial system regulation.
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