Appearing before the Senate Economics Legislation Committee in Canberra on Tuesday night, APRA chairman Wayne Byres explained that while there are risks within the economic and financial environment right now, Australia’s financial system is “fundamentally sound”.
“Probably the most high-profile issue that we have focused on in the domestic environment in recent times has been the heightened risk in housing lending,” Mr Byres said.
“This reflects the environment of high prices and household debt, low interest rates and income growth, and strong competitive pressures.”
APRA’s actions – including its most recent intervention to limit the extent of interest-only lending – have been designed to reinforce sound lending standards in Australian banks, Mr Byres said.
“It’s important to be clear that our goal has not been to seek to determine house prices. Housing prices are not within the control, nor the mandate, of the prudential regulator,” he explained. “Rather, our role in the current environment is to promote a higher-than-normal degree of prudence – by lenders and, ideally, also borrowers – in both credit decisions and balance sheet strength.”
Fed budget won’t change APRA’s ‘philosophy’
The federal government announced on budget night that it would provide $9.7 million over the next three years to modernise APRA’s data collection processes and systems. The budget also outlines plans to give the banking regulator additional powers to disqualify executives, adjust banks’ remuneration policies and make enforcements on bank conduct.
However, Mr Byres noted this week that many of the measures involve “a strengthening of APRA’s existing powers”, rather than completely new additions to its armoury.
“APRA already has, for example, a fit and proper regime covering senior executives, powers that allow for the disqualification of individuals, and a capacity to set and enforce standards for remuneration policies,” he said. “The proposals announced in the budget will considerably strengthen these, particularly as they apply to ADIs, and better equip APRA to enforce change where clear shortcomings have been identified.
“Most importantly, we do not consider that the measures announced in the budget will fundamentally change APRA’s supervisory philosophy.”
One of the more controversial budgetary measures will see APRA given regulatory powers over the non-banks, who are currently held to account by ASIC. Mr Byres said this is one of two measures, along with the proposed civil penalty regime, that is “genuinely new”.
While the non-banks have been relatively quiet about the prospect of answering to APRA, former Pepper group-CEO Patrick Tuttle slammed the measures.
Mr Tuttle believes the potential unintended consequences of APRA’s intervention of the non-bank lenders is a cause for concern.
“It could result in APRA imposing excessive controls, which he fears would impede the functioning of Australia's non-bank sector,” he said. “It will also potentially create regulatory chaos between APRA and ASIC.”