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THE long reach of the looming Basel III bank capitalisation rules has got down into Australian term deposits, with ASIC looking for ways around an inconsistency with the Corporations Act.

Basel III, taking effect in 2013 and aimed at strengthening the liquidity of the battered global banking sector, mandates a minimum 31 days' notice before term deposits can be redeemed, since one Basel III test is that banks should survive a 30-day crisis.

Terms deposits in Australia that are easily "breakable" are regulated less than others and classified as Basic Deposit Products, not requiring product disclosure statements and other consumer protections as required by the Corporations Act.

On the other side, "breakable" deposits will count less highly for bank liquidity levels under Basel III than "unbreakable" deposits, so the Australian Securities & Investments Commission is looking for a way to allow more deposits to be "unbreakable" while still qualifying as BDPs.

ASIC, which has consumer protection oversight, is the third regulator in Australia involved in Basel III, behind the Reserve Bank and the Australian Prudential Regulation Authority. The latter's chairman, John Laker, will issue a discussion paper on Basel III before Christmas, which he recently stated would make no concessions to the current weakness of global banking markets.

ASIC yesterday issued a consultation paper suggesting forms of relief from the Corporations Act that may be made available to banks planning to accept those "unbreakable" deposits, mostly relating to the amount of information that depositors are given before they hand their money over. If enough information is given to depositors making it clear their money would be locked up for a fixed period, then the banks would not be forced to issue PDSs and adhere to higher staff trading standards as the act requires.

One expert indicated that with the right settings there could be advantages for banks and depositors, in which banks might offer higher rates to depositors prepared to accept "'unbreakable" deposit conditions, since their deposits could count towards the banks' capital adequacy.
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