More on APRA’s move to shore up bank capital today from the AFR:
A visit to Australia last year by officials from the International Monetary Fund was the catalyst for the bank regulator to harden its position on dividend payments by the banks.
The Australian Prudential Regulation Authority (APRA) initially reacted cooly when the IMF called for Australia’s “too big to fail” banks to be funded with more equity capital, in order to provide a bigger financial buffer to protect depositors and taxpayers and safeguard the financial system.
But since last November, APRA has fallen into line with the framework directed by the Group of 20 leaders and Swiss-based Financial Stability Board.
…The regulator’s annual report tabled in Parliament on Thursday acknowledges the influence of the IMF’s “external audit”.
The IMF believes the dominance of the Commonwealth Bank of Australia, Westpac Banking Corp, ANZ Banking Group and National Australia Bank (NAB), which hold 80 per cent of banking assets and 88 per cent of residential mortgages, creates risks for the economy. “Significant and protracted difficulties in any one of them would have severe repercussions for the entire financial system and, in turn, the real economy,” the IMF’s review said last November.
Notably, the evolving view at APRA has occurred during a period in which Wayne Byres was named as the next chairman of APRA. Byres, on secondment from APRA, has been working for the past two years in Switzerland for the global standard-setting body for banking regulation, the Basel Committee on Banking Supervision (BCBS).
Undoubtedly he would be keen to ensure Australia follows the international framework he has been responsible for, when he takes over from outgoing APRA chairman John Laker next July.
Byres has also headed the drive for much less freedom in the use of internal risk models, which is the dirty little secret at the heart of Australian banking. From Bloomie a few weeks ago:
Banks’ ability to reduce their capital requirements by changing how they measure the risk of losses on their assets has prompted regulatory reviews and calls from some supervisors for more reliance on non-risk-sensitive capital rules. Bankers including Jamie Dimon, chief executive officer of JPMorgan Chase & Co. (JPM), have said that flexible implementation of previous rounds of Basel rules in the European Union has allowed European lenders to hold less capital against some assets compared to their U.S. counterparts.
A study of large banks found “substantial” differences in how much capital lenders thought was needed to guard against possible losses on assets, the Basel committee said earlier this year. Differences in the risk-models used by banks was an “important source” of the variation, the group said.
Bank of England Governor Mark Carney, in his capacity as chairman of the international Financial Stability Board, has also warned of “worryingly large differences” in the results produced by different banks’ risk models.
The Basel proposals will address variations in different banks’ risk measurement and will go beyond toughening rules on how much information banks have to disclose about their models, Wayne Byres, the Basel committee’s secretary general, said in an e-mail.
“We want the new methodology to be more robust, and produce more consistent outcomes, than is currently the case,” he said.
I have high hopes for Mr Byres.
