Level 1 Assets in Australia: 2025 Updates & Impact Explained

When financial markets wobble, Australians want to know their money is safe. At the heart of this stability are Level 1 assets—a term that pops up in news headlines during economic uncertainty, but rarely gets the attention it deserves. In 2025, as regulators tighten oversight and global markets remain unpredictable, understanding Level 1 assets isn’t just for bankers or regulators—it’s crucial for anyone invested in Australia’s financial wellbeing.

What Are Level 1 Assets?

Level 1 assets are the gold standard of liquid assets. Under Australia’s prudential regulation—specifically APRA’s liquidity coverage ratio (LCR) requirements—these assets can be sold quickly with minimal loss in value, even during a financial crisis. The most common examples include:

• Australian Commonwealth Government securities (ACGS)

• Cash balances with the Reserve Bank of Australia (RBA)

• High-quality sovereign or central bank debt

Why do they matter? Banks are required to hold enough Level 1 assets to survive a 30-day period of severe market stress. This requirement, set by the Australian Prudential Regulation Authority (APRA), ensures banks don’t run out of cash when customers need it most.

2025 Policy Shifts: What’s Changing?

With global markets facing persistent inflation and interest rate volatility in 2025, Australian regulators have doubled down on liquidity requirements. APRA’s recent updates to the LCR framework have:

• Tightened definitions of what qualifies as a Level 1 asset, particularly for foreign government bonds and certain types of supranational debt

• Raised the minimum required coverage ratios for major banks in response to lessons from overseas bank failures in 2023-24

• Introduced more frequent stress testing and real-time reporting to the RBA

For instance, only AAA-rated sovereign bonds from select countries now qualify as Level 1, reducing banks’ flexibility but boosting overall system safety. These changes mean the major banks—like CBA, Westpac, NAB, and ANZ—have been building up larger buffers of ACGS and RBA cash deposits since late 2024.

Why Level 1 Assets Matter to Everyday Australians

It’s easy to assume asset classifications are just regulatory jargon, but they have real-world consequences:

• Banking Stability: By holding more Level 1 assets, banks are better insulated against shocks—meaning fewer risks of bank runs or sudden collapses.

• Mortgage Rates: With more cash tied up in government bonds, banks may be less aggressive in lending, which can influence home loan rates and availability.

• Government Debt Demand: As banks increase their holdings of ACGS, demand for government bonds rises, affecting yields and, ultimately, the federal budget.

Take the example of March 2025: as global bond markets were rocked by inflation surprises in the US and Europe, Australian banks’ deep holdings of Level 1 assets allowed them to weather the storm with minimal disruption. Customers saw uninterrupted access to savings, and the RBA reported zero liquidity shortfalls—a testament to the system’s resilience.

Looking Ahead: The Role of Level 1 Assets in a Changing Economy

As digital banking expands and new risks—like cyber threats and climate shocks—loom on the horizon, the importance of Level 1 assets will only grow. APRA’s 2025 consultation paper signals a move toward even more granular monitoring, potentially adding certain green bonds to the Level 1 category if they meet strict liquidity and credit standards.

For investors, this means government bonds and RBA cash deposits remain some of the safest harbours. For savers, it’s a reminder that Australia’s financial system is built on robust foundations, designed to keep funds secure even when global headlines turn grim.