Government backs APRA review of capital requirements

Addressing a Summit event in Sydney last Thursday, Treasurer Scott Morrison underscored that the government endorses steps that APRA will be taking on capital requirements.

Mr Morrison’s comments come after APRA chairman Wayne Byres revealed that the regulator’s next move will be to conduct a thorough review of capital adequacy in the Australian banking system.

“APRA's focus on bank capital builds on the actions already taken to bolster bank liquidity arrangements in recent years. Both the content and timing of regulatory changes take into account developments in the Australian economy and in international financial regulatory frameworks,” Mr Morrison explained.

“And we have seen real improvements in capital adequacy ratios as a consequence. Tier 1 capital adequacy ratios have increased from 7.5 per cent in mid-2008 to 11.6 per cent by the end of 2016.”

These improvements are “especially important” according to Mr Morrison, given that Australia’s banks source a “considerable” share of their funding offshore, reflecting Australia’s position as a net importer of capital. He also pointed out that the nation’s banks provide the bulk of the domestic credit that local firms and households receive.

“Notwithstanding the progress being made, there is more to do to ensure Australian banks maintain their strong positioning compared to the rest of the world,” Mr Morrison emphasised.

“APRA has decided that it does not make sense to wait any longer for an agreement on Basel IV to be reached in order to deal with the question of ‘unquestionably strong’. However, in pressing ahead APRA will keep a close eye on trends in the rest of the world.

“While still hopeful that we will see an agreement, it is important Australia continues to move forward and our regulator will continue to enjoy the strong confidence of the government as it acts to calibrate the resilience and stability of our financial system to international standards while doing what is necessary to suit our national needs.”

Plans to ‘hold banks to account’

The Treasurer told the Summit that the government will also be addressing issues in the banking and financial system, “to ensure our banks and financial institutions are held to account”.

He explained that this involves ensuring customer disputes are heard and resolved, maintaining competitive pressures in the system to enable customers to “get the best deal”, and ensuring there are “serious sanctions” to deal with malfeasance.

As such, Mr Morrison highlighted that the Productivity Commission will now be moving on to the new task of implementing the Murray Inquiry's recommendation to review competition in the banking and financial sector.

“And our permanent standing inquiry into the banking and financial system by the House of Representatives economics committee, led by David Coleman, continues to keep the tension in the cord on progressing necessary reforms and informing our ongoing agenda, while holding the banks to account.

“This is a big agenda that is not only making our banking and financial system more resilient and unquestionably strong – but more accountable and competitive to meet the needs of consumers and our dynamic economy.”

APRA I/O call ‘the right one’

Mr Morrison called APRA’s latest move on interest-only loans a “carefully calibrated and proportionate” set of measures. “The decision by APRA to announce these measures was the right one,” he said.

“Australian government regulators will continue to carefully monitor risks to household balance sheets, and promote sound lending practices by Australian financial institutions, fully backed by the Turnbull government,” he concluded.

[Related: APRA sets firm eye on bank capital standards]