Reserve Bank of Australia Annual Report – 2015 Financial Statements Note 11 – Contingent Assets and Liabilities

Bank for International Settlements

The RBA has a contingent liability, amounting to $65.8 million at 30 June 2015 ($59.0 million at 30 June 2014), for the uncalled portion of its shares held in the BIS.

Performance Guarantees

In the course of providing services to its customers, the RBA provides performance guarantees to third parties in relation to customer activities. Such exposure is not material and has not given rise to losses in the past.

Insurance

The RBA carries its own insurance risks except where external insurance cover is considered to be more cost-effective or required by legislation.

NPA and Securency

As outlined in Note 1, the RBA has accounted for the costs, and potential costs, to the consolidated entity associated with the charges laid against NPA, Securency and several former employees of these companies during 2011 and the charges against former employees laid in 2013. In light of the uncertainties, it is not possible to make reliable estimates of all of the potential costs associated with the charges, or potential claims in connection with them, at the date of preparing these accounts.

Regarding the sale of Securency in 2013, the RBA provided the owner of Innovia Security with a number of indemnities for the period during which the company had been jointly owned by the RBA and Innovia Films. It is not possible to reliably estimate the potential financial effect of these indemnities. The RBA, however, does not consider it probable at this time that it will have to make payments in terms of these indemnities. Accordingly, they are treated as contingent liabilities in accordance with AASB 137 – Provisions, Contingent Liabilities and Contingent Assets.

In addition, an amount covering 50 per cent of certain potential liabilities of Innovia Security relating to events prior to the sale has been placed in escrow. The RBA will receive the balance, if any, after relevant claims have been paid, settled or lapse. At this time it is not possible to estimate the likelihood of the RBA receiving any payments from the amounts that remain in escrow and they are treated as a contingent asset, in accordance with AASB 137.

Committed Liquidity Facility

From 1 January 2015, the RBA has provided a Committed Liquidity Facility (CLF) to eligible authorised deposit-taking institutions (ADIs) as part of Australia's implementation of the Basel III liquidity standards. The CLF provides ADIs with a contractual commitment to funding under repurchase agreements with the RBA, subject to certain conditions. It was established to ensure that ADIs are able to meet their liquidity requirements under Basel III. The CLF is made available to ADIs in Australia because the supply of High Quality Liquid Assets (HQLA) is lower in Australia than is typical in other major countries; in other countries, these liquidity requirements are usually met by banks holding HQLAs on their balance sheet. The RBA administers the CLF, although the Australian Prudential Regulation Authority (APRA) determines which institutions have access to the facility and the amount of the CLF available to individual ADIs.

Any drawdown on this commitment is contingent on several conditions being satisfied, including: APRA not objecting to the drawdown; and the ADI having positive net worth in the opinion of the RBA. Accordingly, the potential funding under the CLF is disclosed as a contingent liability; repurchase agreements associated with providing such funding are disclosed as a contingent asset.

The aggregate undrawn commitment of the CLF at 30 June 2015 totalled about $255 billion for 13 ADIs.