With just over 6 months to go APRA have today released their draft of the standard giving the market disclosures needed under Basel II.

In short, and as expected, they have largely followed the disclosures under Pillar III of the accord for the banks going Advanced – with the bulk of the disclosures copied (sensibly) word for word. As with any of these, APRA needed to make some changes (discussed below). The real interest is in how scanty the disclosures will need to be for the ADIs (authorised deposit taking institutions) going standardised. For these guys the disclosures are (very) little more than they have to make now.

The other interesting point is in how you may disclose these – release to the website (para 18)! There is no need to formally publish the results in hard copy. Good move.

Many of the changes are simply textual – just making the disclosures work with the previously released standards. I will confine my discussion at this point to the substantial changes from Pillar III.

Advanced Banks

These disclosures have been broken into two – the Australian owned banks and the foreign owned ones – with the foreign ones in with the standardised banks. One bank in particular will be happy with this, I imagine (yes, BankWest, I am thinking of you).

The scope has been slightly changed. APRA have added in some wording around capital deficiencies in all subsidiaries not included in the consolidated banking entity and a bit more around insurance entities. Not much of a change and the sort of stuff you would expect to see in an annual report in any case.

Tables 2 through 7 are unchanged (except for minor differences) but a puzzling change is in table 8 – the quantitative disclosures have been removed from the counterparty credit risk section. This I cannot understand – I am sure I must be missing something. Any hints?

I think there is a small error in the next one, Table 9. Disclosure (i) looks like an error, carried over from the standardised section and I think this one will be dropped from the final version. It may be only related to the portions of the portfolio going standardized, but it does not read that way.

On table 11, disclosure (b) from the Accord has been dropped, so an Advanced bank does not have to disclose the basis on which the soundness standards on which the bank’s internal capital adequacy is based. Not sure if this is a good move or not – most of the banks by now know each other’s approaches quite well, so why keep it secret?

Standardised ADIs

The changes from the Accord are major here – most of the disclosures are gone. Simply absent. I am presuming this is on the basis that most, if not all, of the Standardised ADIs are not internationally active, so their strict compliance with the Accord is not needed. Really, though, these disclosures are so short as to be useless for any meaningful evaluation of the riskiness of the portfolio and any self-respecting ADI will be looking to exceed these – particularly if they are listed.

On this point, disappointing, APRA.

Overall, though, the changes from the Accord are relatively minor – as they should be – so a good result. A couple of changes are likely, though and, IMHO, the disclosures for the Standardised ADIs should be increased. The really good ones will do much m

ore than this.