“APRA Chair Defends Strong Banking System Amidst Calls for Regulatory Easing”

Finance

In a recent address at the Australian Banking Association Conference, APRA Chair Wayne Byres emphasized the importance of a strong, stable, and resilient banking system. Amidst calls for regulatory easing from the banking sector, Byres defended APRA’s prudential framework and its role in ensuring financial safety and stability.

Byres acknowledged that the regulatory pendulum may have swung too far towards safety, potentially impacting credit access and dynamism in the industry. However, he argued that the debate has been heavily focused on the costs of financial regulations while overlooking the benefits such as protecting deposits, preventing unmanageable debts, and avoiding taxpayer-funded bailouts.

The Chair also highlighted the global context, citing the Global Financial Crisis (GFC) and the importance of internationally recognized strong banks in maintaining efficient access to international funding markets. APRA’s modern prudential framework, including higher capital and liquidity requirements and greater emphasis on risk management, emerged as a response to the GFC and subsequent financial inquiries.

Byres further emphasized the necessity of “unquestionably strong” capital levels, a status achieved by all Australian banks by January 2020. He also pointed out that in a hypothetical scenario with lower capital positions, several large banks would deplete their capital buffers, potentially leading to credit supply restrictions or even bank failures.

In conclusion, Byres stressed that while APRA is open to fine-tuning its regulatory settings, maintaining the strength of the banking system remains its primary focus. The aim is not to continually ratchet up the settings but to ensure a balanced approach that considers safety, stability, competition, and efficiency.

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