Australia's big four banks face the prospect of raising an additional $30 billion to bring their capital levels into line with the stated demands of the Federal Government's Financial System Inquiry.

The banks' primary regulator, the Australian Prudential Regulation Authority (APRA), found the "big four" will have to raise their top-tier capital levels by at least 2 percentage points to be comfortably positioned within the top 25 per cent of global banks.

Capital requirement refers to the amount of readily accessible money the banks must hold in case of financial turmoil.

Globally, the ratio of capital held by major banks has been rising since the global financial crisis laid bare how inadequate the prior levels had been.

But the extra security does come at a cost, taking money that would normally be boosting bank profits out of circulation.

Research from broking houses shows APRA's suggested extra buffer amounts to around an extra $30 billion, which is roughly equivalent to the existing regulatory capital held by any one of Australia's major banks.

The APRA study found Australian banks' top-tier 1 capital reserves — or CET1 ratio — fell well short of that held by global peers.

CET1 refers to the highest quality capital, and therefore the most useful to hold in difficult times.

APRA said on average the Australian banks' "headline CET1" put them in the middle of the bottom 25 per cent on the global stage, while on another comparison measure they were still placed in the middle of the third quartile.

APRA report contradicts bankers' study

The APRA finding is at odds with a study commissioned by the Australian Bankers' Association last year that found the big four were already comfortably inside the top quartile.

APRA's report suggests the relative position of Australian banks has been slipping.

"International peer banks are continuing to build their capital levels," the APRA report said.

"Over the past couple of years, the major (Australian) banks have seen a deterioration in their relative position, despite an increasing trend in their reported capital ratios."

APRA said it fully agreed with the FSI's recommendation that the capital ratios of Australian banks should be unquestionably strong.

The FSI, chaired by former Commonwealth Bank chief David Murray, did not set out a specific target for the relative positioning of capital ratios, beyond proposing they be positioned in the top quartile.

"Strong capital adequacy ratios will enhance the resilience of the financial system, ultimately adding to the welfare of the broader Australian community," APRA noted.

"Australian ADIs [authorised deposit-taking institutions or banks] should, provided they take sensible opportunities to accumulate capital, be well-placed to accommodate any strengthening of capital adequacy requirements that APRA implements over the next few years."

NAB was the first of the major banks to respond to APRA, saying the report showed Australian banks were well capitalised and it had already moved to strengthen its reserves.

"A strong balance sheet has always been a priority at NAB, and since June 2014 the Bank has increased its CET1 ratio from 8.46 per cent to approximately 10 per cent ... following completion of a $5.5 billion rights issue in May," NAB said in a statement to the stock exchange.

ANZ chief financial officer Shayne Elliott says the increase suggested by APRA is within the range the bank planned for.

"We have been planning for an increase in capital levels for some time, following the changes to the Basel international framework and the recent Financial System Inquiry," he said.

Reaction from investors has been mixed.

At midday (AEST), Westpac and the CBA were up 0.3 per cent and 0.2 per cent respectively, while the ANZ and NAB were both down 0.2 per cent.

http://www.abc.net.au/news/2015-07-13/big-four-banks-facing-2430b-capital-shortfall/6615448