The first is strengthening bank balance sheets by increasing the amount and quality of capital in the banking system. By doing so, investors should have greater confidence that banks will be able to meet their liabilities under a broad range of adverse scenarios.
The Australian banking system is part of this global trend to higher and better quality capital, with an increase in common equity lifting the aggregate capital ratio from around 10½ per cent prior to the crisis to around 12½ per cent at end 2014 (Graph 2). The recent capital announcements by some of the large banks will see this ratio rise further.