Yesterday we saw regulatory capture out in the open at the AFR:
Westpac has unleashed a fresh wave of property lending by relaxing serviceability conditions on low risk home loans, immediately increasing the borrowing capacity of aspiring home owners by as much as 8 per cent.
A spokesman for Westpac confirmed the policy change saying credit officers would now have the discretion to approve principal and interest loans to owner occupiers who previously fell just outside lending parameters.
The change in the buffer was “proposed”:
The Australian Prudential Regulation Authority (APRA) has begun consulting on possible revisions to its guidance on the serviceability assessments that authorised deposit-taking institutions (ADIs) perform on residential mortgage loan applications.
In a letter to ADIs issued today, APRA has proposed removing its guidance that ADIs should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7 per cent. Instead, ADIs would be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.
APRA has also proposed that ADIs’ serviceability assessments incorporate an interest rate buffer of 2.5 per cent. Currently, APRA expects ADIs to assess loan serviceability using the higher of either (i) an interest rate floor of at least 7 per cent, or (ii) a 2 per cent buffer over the loan’s interest rate. APRA’s guidance also indicates that a prudent ADI should use rates comfortably above these minima; most ADIs use 7.25 per cent and 2.25 per cent respectively.
But WBC just waltzed right over the APRA wet lettuce.
Today the lettuce bites back, also at AFR:
Westpac has made an abrupt about-face, reinstating a key lending restriction on Thursday night after incurring the prudential regulator’s wrath by removing it without approval earlier this week.
Westpac infuriated the prudential regulator after it went rogue and released a handbrake on residential property lending that has been in place across all Australian banks since 2014.
A spokesman for the Australian Prudential Regulation Authority said it was surprised a big four bank had lowered the serviceability floor before a consultation process designed to refine the standard had been completed.
Yawn. All this is really about is making sure the regulatory capture is not obvious. The policy change itself was lobbied for by the banks despite it being a very stupid idea for national interest policy. APRA is only furious because its wet lettuce regulation has been exposed not because it exists.
WBC will gets its policy loosening shortly.