APRA prepares banks for “economic winter”

Via InvestorDaily.

APRA’s deputy chair John Lonsdale made the comments at FINSIA ‘The Regulators’ event saying that Australia had endured 27 years of continuous expansion but no summer lasts forever.

“Australia’s unprecedented period of uninterrupted economic growth may have years yet to run. We hope it does.

“But when our economic summer inevitably ends – and winter, autumn or just an unseasonal cold snap arrives – the work that APRA is undertaking means Australians can be confident that the financial institutions they rely on are resilient,” he said.

Mr Lonsdale said that over the coming year APRA would focus on policies and actions to withstand any conditions, starting with a review into the regulators enforcement strategy.

“The review will make recommendations on which enforcement issues APRA should consider acting on, what factors we should take into account, and whether there are any practical or legislative impediments to us pursuing a stronger approach,” he said.

Without pre-empting the review, Mr Lonsdale said the authority was willing to consider a strong appetite for formal enforcement action but would remain true to it’s purpose as a regulator.

“We will, however, remain a supervision-led, rather than enforcement-led, regulator with a focus on pre-emptively tackling problems before they compromise an entity’s ability to meet its obligations to beneficiaries, or rectifying adverse outcomes in the best interests of customers.”

Mr Lonsdale said the group would continue into 2019 looking at cases of misconduct that had been raised during the royal commission which may see more enforcement action taken.

“We are also re-examining cases of potential misconduct by regulated entities raised during the royal commission where the evidence presented was either new to APRA or contradicted what we had previously been told,” he said.

APRA would also continue to administer and monitor the BEAR to ensure it is being followed by all the players in the industry said Mr Lonsdale.

“We are actively making sure the regime is firmly embedded in the major banks – and preparing other ADIs to implement it – rather than assessing whether it is yet achieving its objectives,” he said.

Mr Lonsdale said the following year would also see APRA make further advancements towards implementing the final elements of the complex Basel III capital framework for ADIs.

“A key component is rethinking how Australia’s relatively more conservative capital approach can be explained to provide greater transparency about the strength of our banks and more flexibility in times of stress,” he said.

The authority was also working on developing a formal prudential framework for recovery and resolution, to help stressed institutions restore themselves or in extreme cases manage orderly failure of entities beyond help.

“Our ability to create such a framework has been enhanced by the recently passed legislation expanding APRA’s crisis management powers, which provided a clear basis to make prudential standards on resolution.

“These are powers APRA hopes never to need; however, possessing a strong framework to manage failures and crises is a critical component of a resilient financial system,” he said.

APRA was also working with super groups to finalise member outcome packages as well as moving towards an aligned framework for private health insurance with that used in life and general insurance.

Mr Lonsdale finished by saying APRA keenly awaited the final report of the royal commission and would react to its recommendations.

“Both the report, and the government’s subsequent response to its recommendations, will become high priorities for us once they are made known, and we are confident that the financial system will ultimately emerge stronger from the scrutiny,” he said.

That does not sound like a regulator focused on loosening credit to save house prices today.

Comments

  1. If you remember the Erebus and the Terror on the North West Passage run
    where the poms thought they would take all the comforts of home on the chilly short cut to the states
    I think they hold the record for the most explorers disappeared without trace
    and I think Leichardt comes second.
    Being lost in a wilderness can be very taxing

  2. ““But when our economic summer inevitably ends – and winter, autumn or just an unseasonal cold snap arrives – the work that APRA is undertaking means Australians can be confident that the financial institutions they rely on are resilient,” he said.” – I would believed it if APRA started MPs in 2008.

    • The bottom line is that the banks will never be resilient enough to withstand a major drawn-down in house prices. They will need a recapitalisation — probably from the taxpayer.

      • Ian Verrander referred to the Big 4 banks as “building societies” in today’s ABC because they 80% of their business is home loans. It was an interesting comment.

  3. There is no appetite for winters of any kind in the financial world anymore. The Volckers are extinct. Matter of time before “teh lower rates will fix thing”.

  4. FINSIA, those guys have been silent through the history of this housing debacle. At least the AICD have been semi strident.

  5. Blah Blah Blah

    What a lot of waffle. The issue is very simple.

    If effectively privatizing public money power to the private banks was not bad enough we then deregulated their exercise of the power and allowed them to use the power unproductively to blow a massive bubble in residential housing.

    Fixing that problem involves a couple of steps.

    1. Re-regulating the exercise of the power by the private banks to discourage the most unproductive examples.

    e.g. investment in existing housing rather than new housing stock.

    2. Expanding the role of central bank liabilities by allowing all Australians and non-banks to maintain MyRBA deposit accounts at the RBA. This will reduce our dependence on private bank liabilities as public money.

    Preferably the process will result in public money that is 100% public (in other words entirely central bank liabilities).

    That does not mean of course that private organisations can introduce their own forms of private money – e.g. cryptos, private bank notes.

    And it does not prevent people acquiring foreign exchange if they don’t trust the 100% public money issued by their own government.

  6. More like…..Australia had endured 27 years of continuous economic delusion. A neoliberal mental disorder.
    Idiot politicians think they have ‘reformed’ the economy. They have killed much of it.

    • Yep – that ideology combined with the open mercantalism of our trade rivals has ensured that they now have the industrial capacity we once had.

      We are the 16th largest market for new cars on the planet (1.16 million) and we produce ZERO new cars

      https://focus2move.com/world-car-market/

      Check out how many countries (51) understand the importance of maintaining car manufacturing capacity.

      https://en.wikipedia.org/wiki/List_of_countries_by_motor_vehicle_production

      • Sweeper,

        “People like you”

        If you want to have a swing at least try and make sense.

        There is nothing about 100% public money controlled by the public and regulating capital inflows in the way I propose that is a ‘market based solution’.

        The problem with Comrades like you is that you think that unless someone supports the full nationalisation of every industry and business they must be a raging free market neo-liberal.

        Next you will be calling me a “capitalist roader”

        https://en.wikipedia.org/wiki/Capitalist_roader

        And people wonder why everyone stopped paying attention to the “old left”

  7. Now is the winter of our discontent
    Made glorious summer by this sun of York;
    And all the clouds that lour’d upon our house
    In the deep bosom of the ocean buried.
    Now are our brows bound with victorious wreaths;
    Our bruised arms hung up for monuments;
    Our stern alarums changed to merry meetings,
    Our dreadful marches to delightful measures.
    Grim-visaged war hath smooth’d his wrinkled front;
    And now, instead of mounting barded steeds
    To fright the souls of fearful adversaries,
    He capers nimbly in a lady’s chamber
    To the lascivious pleasing of a lute.
    But I, that am not shaped for sportive tricks,
    Nor made to court an amorous looking-glass;
    I, that am rudely stamp’d, and want love’s majesty
    To strut before a wanton ambling nymph;
    I, that am curtail’d of this fair proportion,
    Cheated of feature by dissembling nature,
    Deformed, unfinish’d, sent before my time
    Into this breathing world, scarce half made up,
    And that so lamely and unfashionable
    That dogs bark at me as I halt by them;
    Why, I, in this weak piping time of peace,
    Have no delight to pass away the time,
    Unless to spy my shadow in the sun
    And descant on mine own deformity:
    And therefore, since I cannot prove a lover,
    To entertain these fair well-spoken days,
    I am determined to prove a villain
    And hate the idle pleasures of these days.
    Plots have I laid, inductions dangerous,
    By drunken prophecies, libels and dreams,
    To set my brother Clarence and the king
    In deadly hate the one against the other:
    And if King Edward be as true and just
    As I am subtle, false and treacherous,
    This day should Clarence closely be mew’d up,
    About a prophecy, which says that ‘G’
    Of Edward’s heirs the murderer shall be.
    Dive, thoughts, down to my soul: here
    Clarence comes.

  8. Even StevenMEMBER

    It certainly sounds like it’s APRA/ASIC vs RBA/Treasury because the tone coming from each group is markedly different.

    • John Lonsdale worked for decades in The Treasury, most recently as a Deputy Secretary, and his first job since joining the Public Service via Treasury is this new appointment at APRA. He will continue to carry the views of Treasury in his new role while implementing APRA’s functions.

      It is not a case of ASIC/APRA v RBA/Treasury. They are all one and the same and have a singular mindset, especially because their senior employees follow their masters wishes in Parliament and want to have another life in the private sector where they can earn multiples of their PS incomes.