Mr Byres was speaking at a Centre for International Finance and Regulation workshop on the Financial System Inquiry's final report in Sydney last week.
The APRA boss said the FSI's recommendations in relation to competition were "perfectly fine and perfectly sensible".
"I don’t have any concern with the perspectives that the FSI put, which is [that APRA and ASIC] should increase the prominence that we give to considerations around competition," he said.
However, as it considers the FSI final report, the government ought to think carefully about the relationship between competition and stability, Mr Byres said.
"We shouldn’t pretend that competition and stability are mutually exclusive, or that we necessarily have to trade off one for the other," he said.
"Like all things, if you have too much or too little of something it’s often a bad result."
It is possible to have too much competition within a financial system, he said, pointing to "a number of global banks in 2006/2007" as proof.
Closer to home, the demise of Australian insurance company HIH is a telling example, Mr Byres said.
"[HIH] was a very competitive organisation before it drove itself into the ground," he explained.
Consequently, it is counter-productive for a financial system to be at either end of the competition/stability "spectrum".
"We shouldn’t think that there has to be a trade-off. Sustainable competition can also deliver financial stability, and that's in the best interests of everyone," he said.