This is better, from the AFR, comes Wayne Byers, chairman of APRA:
“If we draw one conclusion from the stress test this year, it’s that there remains more to do to be able to confidently deliver strength in adversity,” he said.
With surging house prices in Sydney and Melbourne… Mr Byres said the low risk nature of Australian housing portfolios “has traditionally provided ballast for Australian banks … But that does not mean that will always be the case.”
Under an economic shock, almost all banks projected that they would fall well into the capital conservation buffer range and would therefore be severely constrained on paying dividends and bonuses under two scenarios modelled by APRA.
…Mr Byres also said banks needed to be more cautious about using historical data in Australia given the absence of major housing crises.
…Mr Byres also questioned whether the Australian banking system is actually more risky than CET1 levels suggest due to the way in which Australian banks risk weight housing loans for being lower risk…“Put simply, much of the strengthening of capital ratios relative to a decade ago is less the product of substantial growth in capital and more the product of the increasing proportion of housing loans within loan portfolios. In short, banks have de-risked rather than deleveraged,” he said.
I would put it a bit differently. They have de-weighted capital not deleveraged. Let us hope this leads to explicit macroprudential rules by year end. This is the groundwork for it.
