Find the full transcript of Captain Glenn’s departing interview at The Australian here. It’s long and interesting and talks a lot about housing markets, China, the Aussie dollar and much more. The bit that caught my eye was this macroprudential mea culpa:
MR UREN: Something you – when macroprudential was first spoken about in the wake of the financial crisis – obviously it’s been spoken about before that, but when it came to the fore, you expressed some scepticism about it and you – I think you mentioned that if it prevailed for too long, then it was basically going to be saying to you that your pricing of credit was wrong. I think it’s getting on for three years now that APRA’s had its limits. Is that right? I think that is.
MR STEVENS: I think probably at the end of 2014 was when that was first being articulated and, I defer to others on the exact timing, but 2015 was certainly a year in which the, the visits to the banks and the look at the standards and all that really got going in earnest. And you can see the effect of that in the way the banks started to reprice things, which was, I guess, a second half of 2015 phenomenon, I would say. But your point is that we’re using these tools and time’s going by?
MR UREN: Yeah.
MR STEVENS: Yeah, well, that’s right. Actually, I would say that the things that 10 have been done have probably been more effective than I had hoped at the margin, so that’s good. I still think that if we have a world where credit is, in some sense, underpriced for a long period and you’re attempting to kind of contain the borrowing by regulatory measures, I think, in the longish run, that probably doesn’t work. And my reason for saying that is that’s really what we were trying to do in this country for quite a long time up until financial regulation occurred.
MR UREN: Yeah.
MR STEVENS: And I suspect that if we sought to contain credit growth for a 20 lengthy period with regulatory tools, we probably would end up relearning those lessons. But thus far, in the sort of horizon over which we have been using – or APRA has been deploying these tools, and ASIC also did some things, they have been of reasonable effect – that’s been helpful, I think.
MR GLYNN: Would you describe it as a conversion of sorts, then, to macroprudential tools?
MR STEVENS: Not quite. But – I would describe it as we, as a group of regulators, tried to deploy the things that we had to deal with the situation and they 30 have had positive effects. And I would say, probably, the work that APRA did on lending standards, that may well have been more powerful than just the announce ment of the 10 per cent thing. I suspect it’s that deeper work going to look at actual practices prompting some tightening up there. That’s been of more durable value and that, of course, is worth doing anyway regardless of the macroeconomic situation. So I mean, in a way, that’s saying we’re believers in proper, rigorous supervision and we always have been.
Actually, MB began the campaign for MP with the commencement of the rate cutting cycle in 2011 and it will haunt the legacy of the Stevens RBA that it took four years to implement it.
