APRA says it has banking ‘under control’

Via the AFR:

Australian Prudential Regulatory Authority chairman Wayne Byres withstood an aggressive line of questioning from the House Economics Committee on Wednesday saying there was little evidence of a lending free-for-all and rejected claims the regulator was unable to keep the the banks in line.

After more than an hour of questioning of about revelations of lax lending standards from the Hayne royal commission, Mr Byres said that while there was a small cohort of borrowers who would have difficulty servicing loans when rates move higher there was no sign of a broader problem.

“We are still dealing with an environment in which arrears are not particularly high, they are higher than they have been for a while, but if lending was a free-for-all in the way that some are suggesting I think arrears rates and other things, indicators or financial stress, would be much higher than what they are now” Mr Byres said.

UBS pre-prepared a riposte:

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

Round one of public hearings in the Royal Commission began on Tuesday 13th March with an initial focus on consumer lending. So far the Royal Commission has been presented with substantial evidence based on a number of case studies into banking misconduct. The following are a series of quotes from the Royal Commission transcript which illustrate the extent of these issues:

Fraud and Bribery

Counsel Assisting, Ms Rowena Orr, QC: “I want to put to you is that NAB knows, & you know, that there were unsuitable loans, there was false documentation, there was dishonest application of customers’ signatures on consent forms & there was the misstatement of some loans in loan documentation.

The whistleblower is recorded as saying: ‘One customer recently said at a particular branch, they told him he could borrow $800,000, but the valuation was only $450,000. The whistleblower said the money exchanges hands in cash, in envelopes, white envelopes usually over the counter. Money is deposited at CBA, so NAB can’t detect the deposits’. Now, this is the information provided by the second whistleblower. Is that right?”

Mr Waldron, NAB – “That’s correct”

Counsel Assisting, Ms Rowena Orr, QC – “And the whistleblower tells NAB that these people are making up fake payslips, fake ID, fake Medicare cards … They charge $2,800 bribery for each customer for home loans”.

Failure to verify customer income

Counsel Assisting, Ms Rowena Orr, QC – “And it wasn’t just the fact for Mr Meehan, that had submitted more than 50% to a single lender; it was also the fact that the particular lender that he had submitted them to was Westpac because Aussie [Home Loans] had formed the view that the credit assessment processes at Westpac were more lax than at other lenders; is that right? Aussie had formed the view that the fact that they [Westpac] were just requiring a letter of employment, as opposed to payslips, would be something that brokers would become aware of to be easier to provide the documentation that was necessary. And do you mean, by that, a letter of employment is an easier document to falsify?”

Lynda Harris, Aussie Home Loans – “Yes”.

Failure to assess customer expenses

Counsel Assisting, Ms Rowena Orr, QC – “The first issue I think that’s worth mentioning this across home loans…it’s a lack of questions & verifications about expenditure. When we ask for copies of their assessment, is that it looks much more likely that a benchmark has been used than they looked at the consumer’s actually expenditure, which can vary considerably from a benchmark figure. There is also very little evidence that expenditure has actually been verified in any way.” Mr Ranken, ANZ – “ANZ recognised there were instances where it lacked evidence to show that genuine inquiries had been made”

Failure of internal controls

Counsel Assisting, Mr Dinelli – “The remediation paid demonstrates that processing errors occur across a variety of credit products. They occur predominantly by reason of the application of automated processes, but human errors left unchecked often underlie them.”

Mr Van Horen, CBA – “It was the error we made in our serviceability calculation and the mapping the data flows … without overstating it, doomed to fail … having robust change processes, I think, was our failing and it’s clearly an area of ongoing work.”

Failure to report misconduct to ASIC

Counsel Assisting, Ms Rowena Orr, QC – “NAB knew enough to sack five employees for dishonesty and for conflict of interest, is that right? It knew enough by November to sack people for those reasons. Are you telling me it didn’t know enough to tell ASIC that there was a problem?”

‘Under control’.

There’s more at The Australian:

Mr Byres said APRA was not responsible for policing much of the conduct at the centre of the royal commission.

“Those laws are administered by ASIC. Instances of fraud will be pursued by the corporate regulator and the police in some cases,” he said.

“That’s not to say we don’t have an interest in these issues, because we do — the prudential interest in these issues is trying to understand the extent to which these issues indicate a failing in the governance oversight and accountability within organisations.”

“We have been calling out poor residential lending standards for some time and the need for those to be lifted,” he said.

Bureaucratic arse-covering will not cut it when the bubble bursts.

David Llewellyn-Smith


  1. Relevant StakeholderMEMBER

    Looks like his term is up mid next year, when’s the big IO to P&I rollover happening?

  2. So all evidence to the contrary a tax payer paid beauruecrat can just blatantly deny deny deny to avoid having to take any responsibility. Watch as the mass media just ignores this. But if he was holding a cricket ball and some yellow tape by God watch out. There would be a lynch mob at his front door.

    • I wonder if it will be a replay of Ireland all over again.

      “October 2, 2008. On that night, Ireland’s financial regulator, a lifelong Central Bank bureaucrat in his 60s named Patrick Neary, came live on national television to be interviewed. The interviewer sounded as if he had just finished reading the collected works of Morgan Kelly. Neary, for his part, looked as if he had been dragged from a hole into which he badly wanted to return. He wore an insecure little mustache, stammered rote answers to questions he had not been asked, and ignored the ones he had been asked.

      A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith. Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were “resilient” and “more than adequately capitalized” … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, ‘Who the fuck was that??? Is that the fucking guy who is in charge of the money???’ That’s when everyone panicked.”

      From Michael Lewis “When irish eyes are crying”

      • It may be a long countdown compared to an SpaceX launch, but it is still a countdown nonetheless.

      • Jumping jack flash

        Good call.

        I think Australia’s debt bubble is very similar to Ireland’s, and it will end up pretty much the same way.
        Similarities between theirs and ours were pointed out on this site very early on after Ireland’s popped and ours took off. I doubt anything was done here to correct those issues, because they are simply not seen as issues.

        Larger and larger debt mountains attached to property is a good way to get instantly rich, not cause for alarm.

      • Even StevenMEMBER

        I don’t agree that we’re going to see an Irish scenario. I think instead we have systematically shackled people to lifetime debt, which, in most cases they can afford to pay… but not comfortably. A lifetime of serfdom. That’s the more likely outcome for many Australians.

        They’ll realise it’s serfdom when our economy hits a bump and they can no longer afford to buy takeaway… then the anger will start.

    • And that is Straya of today. At work I know 5 that have discussed RC and considering what to do about protecting themselves in the future. And I know 100 that think RC wants to bring house prices down and should be shut.

  3. Ha! Not us ASIC…I had same response when Telstra were issuing me bills for 3rd party ‘services’ I knew nothing about…ombudsman nah not us accc nah try the ombudsman consumer affairs nah try asic and round and round we go….useless

    • I agree Stephen. Useless, and not fit for purpose. The thing is there is no protection for the average person. Who can afford a lawyer when it all goes wrong as well.

  4. The comments of Wayne Byres are not surprising as they are consistent with the design and philosophy of APRA.

    APRA is NOT a regulator of private bank credit creation it is a regulator of private bank “prudential” performance. They are NOT the same thing as Byres points out.

    No one is regulating private bank credit creation.

    That is the whole point of the “deregulation” era with regard to private banks. They are according to modern free market theory, when competing with each in the free market, the most efficient allocators of private bank credit.

    Sure we now know the theories have proved to be wrong and we ended up with an economy stuffed with household debt driven asset prices but UNTIL the mission of APRA changes why do you keep expecting its officers to talk as though it has?

    APRA was dragged kicking and screaming to credit creation regulation – lite aka macroprudential – and they are clearly keen to ditch it as fast as possible. The RBA still has next to no time for any talk of credit creation regulation.

    People now understand that a relentless campaign to fix immigration policy is required yet seem to think some hairy magic pixie is going to fix the regulatory and structural problems that have turned our banking and monetary systems into a massive asset price casino ridden with sharp practices and crooks in shiny suits.

    The only thing that has papered over the disaster is the determination of policymakers to keep spraying more unproductive private bank credit creation at the problem.

    1. Massive inflows of foreign capital to drive down mortgage rates

    2. Massive inflows of new immigrants as consumers of credit products

    3. Massive sales of local residential assets to foreigners.

    4. Taxation policy that rewards debt driven asset price speculation

    5. An effective taxpayer guarantee underwriting the scam.

    Until people start treating the RBA and APRA as a public policy failure like the big business BIG Australia population stuffing program nothing will change and we remain enroute to an eventual economic ‘iceberg’.

    • Ok, but given the determination of policymakers to continue more of the same, where, apart from The Glass Pyramid, is the will? Seriously, how many in parliament, the RBA and Treasury not only understand the issues but support your thesis?

      Your solutions are necessarily radical reforms – this is why we need to reach Year Zero first. In the meantime, perhaps something more pragmatic?

      • Where?

        Where was the support for SSM 10 years ago?

        Where was the support for immigration reductions 12 months ago?

        Where was the support for a banking RC 12 months ago?

        All those public servants go to BBQs, read papers, listen to the radio, read books, blogs and even comment sections.

        I know this because I know some of them.

        They feel as uncomfortable as anyone else being on the wrong side of history.

        Don’t under estimate the capacity for attitudes to change and change much faster than seems possible.

        Our pollies are now not much more than focus group reflectors. Once the focus groups start fingering the banking system and its regulation change will be on the way.

        The main barrier at the moment is that many of those who understand what the problem is take a fatalistic nothing ever changes attitude when the evidence is stuff changes all the time.

        More pragmatic?

        What is more pragmatic and politically possible than cutting taxes on lower paid workers to stimulate the economy as speculators in existing property (not new property) are increasingly cut off from access to credit.

        Its not even necessary to do the direct bond sales to the RBA but I cant see why a couple of small transactions to demonstrate the world will not end is so hard.

        Funding a 10% of the deficit this way can be done immediately and demonstrate that it is perfectly safe.

        The only thing holding us back is not a preference for “pragmattic” solutions.

        It is nothing more than the “chains” of ideology and breaking them is nothing more than a state of mind.

      • It is hard to tell whether Wayne Byres is disingenuous or just stupid.

        My view is the former and 007’s appears the latter.

        But then again, I could be wrong as I have a history of underestimating people’s stupidity.

      • Dumpling,

        My vote is for disingenuous. People don’t get to run things like APRA if they are stupid.

        It is clear from his answers that he understands the points I am making but he is carefully not volunteering any information that might assist the House Economics Committee members who probably don’t understand those points.

        He could quite easily say

        “Hey you clowns, stop asking me why I am not doing stuff that your legislative framework clearly does not intend for me to do. Read my lips…we are a prudential regulator…we don’t do regulation of the purposes of credit creation.”

        “If we did that you would whinge that APRA were running the economy. We certainly do but the ‘game’ is that we pretend we don’t and claim that it is just the ‘free market’ and banks competing”

        “If you really want us to regulate credit creation by banks in a meaningful way you have to stop with the horse poop about APRA being an independent regulator. That is just a shame to conceal that the economy is being driven by monetary policy which simply means being run by private banks who drive money creation to benefit wealthy asset owners”

        “Can I go now? I have some important private meetings with some private bank “system stakeholders” to attend. You know making sure they are making healthy profits and don’t go broke…..in other words ‘prudential’ supervision”

      • Jumping jack flash

        Indeed, that is the illusion.
        The illusion of the free market.
        How much regulation can we install before we no longer can call ourselves a free market?

        But if we are actually a free market, then let market forces actually prevail.
        Let the banks crash when they use an incorrect measure for evaluating risk, price it too low, and then take on too much risk. Perhaps when the dust settles they’ll choose a more effective measure of risk for next time.

      • Rage,

        Dont worry there are plenty of reasons for pessimism but i take the view that making everyone pessimistic is no accident.

        They are already freaking out that more and more people are starting to see through the scam and dysfunction of effectively outsourcing economic management and coordination to monetary policy and the private banks.

        They are desperately trying to keep the RC under control and they may succeed.

        If they do we will just demand another one…from the ALP and Greens!

  5. Love how he throws APRA under the bus – clearly there is no way ‘under control’ will age badly…

    To people from APRA who are reading, this is the exact moment your boss threw the lot of you under the bus. When the proverbial hits the fan, old mate will get the sack and pensioned off.

    But you… lol… you will be looking for ways to cover the hole in your CV that would have said APRA, when you apply for that job as a ‘regulatory analyst’ at a 2nd tier that used to exist. What was your last job – ratings analyst at Moody’s covering CDO’s?

  6. Whether Byres is covering his posterior or not, this is another instance of a regulator with a purview in the area (That’s not to say we don’t have an interest in these issues, because we do — the prudential interest in these issues is trying to understand the extent to which these issues indicate a failing in the governance oversight and accountability within organisations.”) but a flaw in the regulator design, ineffectual governance or oversight. He-APRA can’t regulate on the basis of his own statement and the way the system is set up.

  7. Under it’s control, not “under control”. It’s failures are epic. If you look at the number of ASX IPO’s that fail soon after you have to ask similar questions of ASIC. It anyone has built a new house to find there are major faults, and then try to get action same problem in Vic at least. Our country has been overrun by thieves,

  8. The Kouks 3rd Chin

    All of these free market credit libertarians use the same shtick. “But arrears are low so theres no problem”

    Why would arrears be high right now? Interest rates are at emergency lows, unemployment is low. Arrears only get going when prices start falling… which is right about now.

    Toothless, disinterested regulator asleep at the wheel and in cahoots with the government to keep the party going as long as possible.

    I have heard this before and there is no doubt in my mind now that Australia is Ireland 2.0

    A fucking powder keg of bullshit waiting to explode in our faces.

  9. oh fudge, this is the siren.. we’re all in real trouble very shortly.

    March 28, 2007
    ‘At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.’ – Ben Bernanke, U.S. Federal Reserve Chairman

    March 28, 2018
    “We are still dealing with an environment in which arrears are not particularly high, they are higher than they have been for a while, but if lending was a free-for-all in the way that some are suggesting I think arrears rates and other things, indicators or financial stress, would be much higher than what they are now” – Wayne Byres, APRA Chairman

    • Those who study history know what is occurring and also what will likely happen next.

      These idiots at the RBA and APRA are either too corrupt or too arrogant to learn from history.

      • Ronin8317MEMBER

        On the contrary. They learnt from the GFC that there is no punishment to lending recklessly, since the government well always bail out the bank, and nobody goes to jail. Why should the regulator stand in the way?


        “Spin’ to make it sound like they in control. Facts show otherwise. Big 4 have paid out >$1.0 B in the last 10 years to 100’s of 1,000s of everyday Strayans who have been impaled by what has been no less than outrageous behaviour.
        Agri, insurance, credit and investment schemes are riddled with scandals at the retail level and KPMG has announced that fraud continues to increase with ‘business insiders’ the top offenders (36%). Out on the horizon sits an enormous pot of bank hybrid securities that also have been marketed to retail investors.

        ‘Disclosure of risk’ is not analogous to prohibition; some things just don’t belong in retail land.
        And, why no ‘interest’ in the gambling industry? Last year (2017) > $24 B was ‘lost’ by Mr and Mrs Strayan!
        It’s ridiculous to say ‘all good’ when financial bush fires are still visible in all compass directions.

  10. But regulators and banksters can and will be sued for dereliction of duties. I assure you; litigation funders are already rubbing their sweaty palms. Especially those “property professionals” advocating loading with debt and emphasizing that they “are not financial advisers so do your own research” must be soiling their underwear even as we speak.

    • Lol, as if!

      What’s the point of suing a cratered bank…. there ain’t no money to be had!

  11. “APRA says it has banking ‘under control’.”

    A mate of mine at one of the Big 4 (pretty senior) was telling me the other day that APRA had written to the bank he works for to ask them to address a specific practice of theirs that was ethically dubious …. back in 2011! The tactic of the bank was to IGNORE the correspondence. APRA followed up a number of times between 2011 but took ZERO ACTION when the bank refused to respond. In other words the bank continued said dubious practice right up until the RC — I assume it will now finally be addressed.

  12. Jumping jack flash

    “Mr Byres said APRA was not responsible for policing much of the conduct at the centre of the royal commission.

    “Those laws are administered by ASIC. Instances of fraud will be pursued by the corporate regulator and the police in some cases,” he said.”

    My favourite part.
    So when do they talk to ASIC and hear them say:

    “[Some guy at ASIC] said they were not responsible for policing much of the conduct at the centre of the royal commission.

    “Those laws are administered by APRA. Instances of fraud will be pursued by the prudential regulator and the police in some cases,” he said.”?

    So much fun!