The implementation of capital requirements in Australia has been driven by the international move to higher capital ratios as well as a desire to ensure that the Australian banks are ‘unquestionably strong’. The Financial System Inquiry (FSI) set out the rationale for Australian banks to achieve this.
It noted that the concentrated nature of the system and the similar business models of the major banks could exacerbate contagion if one major bank experienced difficulties. With capital levels increasing around the world, the FSI therefore concluded that it was important that the Australian regulatory framework continued to evolve to ensure confidence in the Australian banks.