Captured APRA to muscle-up to banks (and deliver global peace)

So says a humiliated Wayne Byers, via Banking Day:

A more frequent use of sanctions by APRA is on the cards, the regulator’s chair, Wayne Byres, told the banking royal commission yesterday.

An afternoon of questioning of Byres was centred on themes of remuneration and bank culture and APRA practices in challenging boards over executive pay.

This opened the way for some reflections of APRA’s prudential inquiry into Commonwealth Bank, released in May.

“Do you have a view as to whether there was a problem within the CBA supervision team [at APRA], with its willingness to act on gut feel and demonstrate tenacity in relation to CBA?” Michael Hodge, counsel assisting, asked Byres.

“I think the CBA supervision team demonstrated a great deal of tenacity,” Byres responded.

“There were a raft of issues that they were pursuing, and they were at loggerheads with CBA on a number of fronts. So I would never in any way question the tenacity of the supervision team. They were doing a good job.

“And the CBA inquiry, obviously, it went deeper and broader and so it found some extra things.

“But the starting hypotheses that the supervision team provided the panel as they went about their task were, I think, proved to be spot on.”

Byres later provided a further glimpse of internal thinking.

“We had the [John Laker led] panel meet the CBA board, and the three of them [on the panel] came in and talked about their reflections and their observations, not just about CBA.

“But as they had identified issues, they were, also alert to whether APRA had been aware of the issues, not aware of the issues. And so we talked through all of that. And generally they gave a good report card.

“But Dr Laker, the chair of the panel and my predecessor, finished the session with some parting words about just rallying the troops and the fact that we had had the inquiry shouldn’t be seen to be in any way a failing of APRA, and that it was really important that supervision teams pursued issues aggressively, even when the institution concerned was pushing back quite aggressively.”

I know we don’t do accountability Downunder but Mr Byers has already proven he is incapable of muscling-up to the banks. Given he still has his job, we can only conclude that the job description is not to do so.

This is why Labor must call a high level inquiry into the banking regulators themselves. The division of responsibilities for prudential oversight are clearly not working with ASIC and APRA at loggerheads over non-banks as one is tasked with oversight and the other with macroprudential tools. There is diffused responsibility between APRA the RBA over monetary policy. There is wildly inappropriate and dangerous secrecy embedded in every process. There is now two-speed regulation between banks and non-banks.

We literally no longer know what APRA’s goals are and credit markets are operating in the dark.

Time for major monetary reform.

David Llewellyn-Smith
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  1. Interesting thing to note about the Royal Commission is that regulators, executives, directors have been taken to task, some have even taken minor pay or bonus cuts (probably temporary, but anyway…). Banks have paid out fines and customer compensation, laid off staff, changed remuneration structures, increased compliance and sold off non-core businesses. OK perhaps not enough, but its a start.

    But one group that seems to have got off scott-free and evaded scrutiny is the bank’s owners, the shareholders. Dividends are still being paid at record levels, profits are still elevated. Fines and compensation are being paid, not by cutting dividends, but by cutting interest rates for depositors, and hiking them for borrowers. So much for the new era of customer focus, and “cultural change”.

    • As soon as we all realise that the customer is the least important thing to a bank aside from something to ream out of every last red cent then sooner that we can vote / take action to change that !

  2. Jumping jack flash

    “This is why Labor must call a high level inquiry into the banking regulators themselves.”

    Indeed. It would be very interesting to see what they would find if they went digging.
    I would think that the rot starts from the very top, ie, not in APRA, but even higher up.
    You can be sure there were some under the table deals and mutual understandings when Howard and Costello were blowing the bubble.

    This softly, softly culture of regulation has certainly occurred since the very inception of the debt bubble in the early 00’s, otherwise, how could it have ever happened?

    The directive at the time was to get the cheap debt money out there for the people to spend, and not ask too many questions in the process.

  3. Even StevenMEMBER

    Diffuse responsibility for monetary policy between APRA and RBA? I think not. RBA has responsibility for monetary policy. As I have said time and time again, APRA has the tools by which to give effect to monetary policy, if the RBA requests it.

    Seems pretty clear to me that the RBA loves high house prices and never had a concern about household debt until just recently. Doubtful they would have been asking APRA to cool the market.

    For its part, APRA has maintained that the banks are soundly capitalised so presumably could see no reason to restrain bank lending. Investor lending and IO lending caps came in IRRESPECTIVE of the strength of the individual bank. This suggests the motivation was financial stability and therefore must have been RBA instigated.

    At least that’s where my logic takes me…