APRA’s macroprudential-lite upsets banks


From the AFR:

In May, amid concerns lending standards were slipping, APRA published landmark guidelines on how it expected banks to manage and monitor their mortgage risks.

But a new submission on behalf of the banking industry has hit back at the plan, saying it will add costs and invites a “tick the box” mentality among lenders. The Australian Bankers’ Association submission argues the regulator should stick to providing banks with top-level principles for lenders to implement as they see fit, rather than developing specific guidelines.

…In particular, the ABA took aim at proposals for tougher stress tests for borrowers, and changes to mortgage broker commissions.

It’s surely good news that the banks feel it necessary to challenge APRA’s macroprudential-lite mortgage guidelines. It may suggest some efficacy at the margin. Then again, it may not. The banks may just be pushing back against any and every regulatory impost as a matter of principle (or lack thereof).

The bottom line is there is no discernible effect in the mortgage market data at this stage (which also doesn’t mean it isn’t happening). But compared to the very clear shifts that transpired in New Zealand following their imposition of macroprudential proper, if there is an effect, it’s far more subtle and not strong enough.

Houses and Holes
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  1. Ah yes, unsubtle and strong “Prices of lifestyle blocks have set a new record….The national median price for sales during the three months to June was $515,000, up 2% compared with the median price of $505,000 for the three months to June 2013. But the median price surged ahead by more than $100,000 in the Auckland region, hitting an all time high of $912,500 in the three months to June, up 15% of the median of $793,750 in the three months to June last year.” (Interest.co.nz)
    Nothing shy of punitive mortgage interest rate rises is going to have any effect. The RBNZ know this now, so do all New Zealanders, and they also know that the MSM scaremongering about ‘the high dollar’ and ‘ killing Mum and Dad’s property superannuation plans’ will frighten the RBNZ into a policy of least harm. That will be to the detriment of the future of our nation. The RBNZ should be hiking 1% this week in the absence of bringing in proper loan-income controls ( or even more restrictive LVR’s even if they aren’t working as envisaged). That it’s even considering stalling the flee-bite 0.25% rise we all expect signals their intention.

    • RBNZ used LVR constraints, announced with much fanfare, and made a complete hash of it. APRA is using serviceability controls, flew in under the radar even though it’s clearly spelt out in the NCCP Act guidelines, and it’s working.

      The RBA seems happy to let the construction boom continue because they know volume construction is the only solution to the supply problem.

      • The underlying problem is that the ‘hash they made of it’…. wasn’t expected! The RBNZ really did think it would work in ways other than polarising the market, which it has so recognisably done. Sadly, ALL RBNZ/Central Bank thinking/policy is just as flawed. Only market based solutions will fix this mess. Take the RBNZ etc out of the mix, at all levels, and let the market decide where prices of all assets should be. And that, of course, applies to the price of money………

      • Fair enough. In a world with an oversupply of money and few willing borrowers, how far do you expect the price of money to fall to once central banks stop propping it up?

      • The price of money will rise, Peter! Once money issuance is curtailed – returned to issuance commensurate with natural resources extraction – then debt destruction begins. Someone, is always left with the debt – it never just ‘goes away/is forgiven’. Witness several countries who have it unexpectedly on their balance sheets today and will for many years/decades to come. The price of money will rise, interest rates rise, as asset prices re-balance ( fall), as those who have the foresight, do as they always do – go to where the next asset price rise is bound to occur 🙂

      • Money isn’t issued based on any gold or similar standard, it’s issued with debt, and there are not many willing borrowers globally.

        Any product including money has to be discounted when there are no buyers. Right now banks are reducing borrowing rates despite the RBA inaction on rates. They are doing that to attract buyers of their money – borrowers.

        We will be in this monetary funk for a decade, two decades, who knows. Get used to it Janet, it won’t change overnight.

        I would assume that your strategy of borrowing low and investing in higher rate TD’s isn’t working anymore. It will be working out OK for the banks though.

      • If you recall, my strategy (detailed to you in early 2012 ?) looks okay to me! When the RBNZ didn’t lower the OCR to 1.75%, in Nov 2012, and compliment that with MP changes (as was so obvious a next step), I posted to you here that I was “borrowing all I could”. I didn’t get it all, as I’ve since recounted, some 80% of what my target was, but that was when our cash rate was 2.5%. Today it’s 3.25% and looking to go higher. It should continue on that track. If it doesn’t then I’ll re-asses, as I always do. My suggestion is that Australia will be little different to NZ, and all other comparable countries in the near term. ie: interest rates will rise. So – am I ‘used to it’? Yup, and happy…..the best time to sell anything, Peter, is when people want to buy, and if you are seeing less willing buyers of property or money, then I’d suggest that the time to sell was…yesterday….and the day to ‘borrow all you can’ was also yesterday….

      • PF

        Though the decision to lend largely depends, in the Oz context, on the existence of credit worthy and willing borrowers, the terms on which the banks attract deposits in Australia is significantly affected by the interest rates off shore.

        At the moment those rates are very low and the exchange rate remains stable. Plus I agree they are likely to remain low as I have my doubts about the strength of the legs of the US even if they are stronger than everyone elses.

        But as a relatively small open economy with significant net off shore debt the situation is not without some risk unless the government and the RBA plan for radical action to ensure the banking sector has access to a new group of people willing to accept very low deposit rates.

        If they already existed the banks would not be bothering to enter borrowing transactions for $AUS with off shore investors. APRA wanted long term lending arrangements not necessarily longer term arrangements with off shore parties.

      • PFH007 – the APRA requirement that banks borrow offshore on longer terms is poorly thought out by APRA . But nevertheless the overall borrowing costs of deposits are coming down.

        Our banks lend locally in $AUD – of course it pre-existed any offshore borrowing. APRA don’t understand the monetary system, but I’m sure that they will catch up at some stage and drop that requirement.

      • Even StevenMEMBER

        PF – what requirement (that APRA is imposing on banks) are you talking about?

  2. If the intention in NZ is to raise rates then I would think the lvr restrictions in place beforehand will help. Keep the most vulnerable out of the market before raising rates.

    • What I would see as the most useful purpose for lvr restrictions is to avoid people quickly getting into negative equity, as well as simply keeping out high risk purchasers. I guess it disproportionately will affect first home owners but seems ok to me if then rates ate raised sufficiently to suppress prices. Of course that last part is not what any central banker really intends…