Financial regulators demand banks lend at any cost

So predictable:

Quarterly Statement by the Council of Financial Regulators – June 2020

The Council of Financial Regulators (the Council) held its regular quarterly meeting on Friday, 19 June. The Australian Treasurer attended for part of the meeting. The Council has been meeting more frequently over the past several months and will continue to do so as required.

The Council’s discussion focused on the ongoing coordinated response to the coronavirus (COVID 19) crisis. The virus and the measures taken to contain it have resulted in the Australian economy experiencing its biggest economic contraction since the 1930s. However, the rate of new infections has declined sharply in Australia and restrictions have been eased in many parts of the country earlier than was previously thought likely. As a result, economic activity is now beginning to recover in some sectors. Conditions in financial markets internationally and in Australia have improved after a period of significant disruption in the early stages of the pandemic. The ongoing coordinated response of governments, central banks, regulators and the private sector is working and will help to support the recovery ahead. However, the outlook, including the nature and speed of the expected recovery, remains uncertain and the pandemic is likely to have long-lasting effects both in Australia and abroad.

The financial sector has played an important role in helping to cushion the effects of the shutdown on households and businesses and will be equally important in supporting the economic recovery. Financial institutions have entered this period with a high level of resilience. In the period ahead they will continue to experience the flow-on effects of the stress experienced by businesses and households. Council members discussed the importance of the transition as the economy recovers and support measures, including temporary loan repayment deferrals, begin to be unwound later in 2020. Members agreed that financial institutions, regulators and governments will need to continue to show flexibility in order to support the objectives of economic recovery, resilience of financial institutions, and fair household and business outcomes.

Council members also discussed APRA’s latest stress testing analysis, which is providing insights into the possible effects of a range of economic scenarios on ADIs’ capital. The stress testing analysis will assist APRA in considering its supervisory approach in the period ahead. Members stressed the importance of the continued flow of credit for the recovery of the economy. APRA has reiterated that the large capital buffers above regulatory minimums that were built up in more favourable times ought to be used during this extreme shock. Members encourage institutions to make use of their capital buffers to continue to support businesses and households.

In addition to domestic developments, Council members discussed the risks in the global financial system that are being reviewed in international forums. These include: the ability of investment funds to effectively manage liquidity risk; the build-up of corporate debt in some economies; non-financial firm solvency risks; the structurally low level of profits in some banking systems; potential stresses in US dollar funding markets; and the ability of market participants and financial market infrastructures to manage evolving counterparty risks. Members agreed to continue to monitor these developments closely, given the potential implications for the Australian financial system.

The Council also held its annual meeting with other Commonwealth regulators of the financial sector. This included representatives from the Australian Competition and Consumer Commission (ACCC), the Australian Taxation Office (ATO) and the Australian Transaction Reports and Analysis Centre (AUSTRAC). Discussions focused on the COVID-19 pandemic and covered the responses of regulatory agencies to the pandemic, the role of financial sector competition in supporting economic recovery, and the operational resilience of regulated entities. Participants noted that extensive cooperation between agencies had been critical to the successful delivery of a number of COVID-related initiatives in recent months. They discussed other areas for further cooperation and joint work, including a focus on effective systems for establishing and verifying digital identity. Participants also highlighted the importance of ensuring robust consumer protection mechanisms during the pandemic, particularly in light of increased susceptibility to conduct risks, including scams, false and misleading advertising, and inappropriate financial advice. Participants welcomed the implementation of the Consumer Data Right reforms from 1 July 2020.

And here was I thinking that the banks would have to lift capital buffers to cover mounting bad loans.

Silly me!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. What makes me an absolute fool over and over is that I thought some of these people in control will be responsible at some stage …. but they will stop at nothing to keep this circus going

    This is going to blow up in the greatest disaster of all time, Q is when ….

    This is why I think interest rates will rise – credit risk like GFC

    The economy has become an absolute joke

    They’ll just blame COVID

  2. If the banks stop lending the game is over.
    The system needs to protect itself.
    That is what it is doing.

  3. StomperMEMBER

    Who would have thought that the solution to fixing a debt crisis was more debt? GENIUS!!!!!

  4. happy valleyMEMBER

    Banks will soon be back to BAU lending to anyone with a pulse, proudly egged on by the CFR?

    • Did they actually ever stop? I really have not seen any evidence of that. Even during the downturn in housing market, they made it a point to come out and say “demand has fallen off, we’re still lending to anyone with a pulse”… So do we actually have any evidence of them stopping or raising the bar? I don’t see any conclusive evidence other than a he-said-she-said of “banks must be stopping lending because house prices are falling!” Vs “no we havent stopped lending, dont know what you’re on about”.

  5. In 3 months time, 60% of the populace that is still employed would have had min 10% pay cut, roughly 90% of the home-loan-borrowers that are still employed would have taken a min. 10% pay cut.

    That is, 90% of the home-loan-borrowers will not qualify for a re-finance (of the full amount) under the current interest rates and current serviciability (even after post-Hayne loosening by APRA) criteria.
    So, banks will be forced to “lend at any cost” come what may

    I concur with bcnich, if the taps dont open, Australian economy aka housing market is f**ked royally!