Tuesday, April 5, 2016

APRA boss says no room for complacency about new GFC

The chairman of the Australian Prudential Regulation Authority has warned Australia should not be complacent about its ability to dodge another global financial crisis.

Wayne Byres told a conference in Sydney that after the build-up to the Wall Street meltdown in 2008, the regulator is now more active and prepared to intervene.

Mr Byers, who was not APRA chairman until 2014, had a sombre reality check about his mission to maintain a resilient banking system in Australia as the fallout from the GFC continues to resonate around the world.

"We shouldn't kid ourselves that the worst of the problems elsewhere couldn't occur here or that there hasn't been a healthy dose of luck involved," Mr Byres said.

"We can't be complacent. After 25 years of economic expansion, it would be a surprise if the banking system wasn't in good shape.

"But put simply, when adversity arrives - and at some point it will - we want the banking system to help alleviate rather than exacerbate problems. Ideally it’s a shock absorber not an amplifier."

Mr Byres also responded to last night's 7.30 program which revealed secret APRA documents from 2007 show that lax lending standards by banks could have could a serious question or a banking crisis.

In response to questions from the ABC, Mr Byres signalled the regulator had ramped up its supervision of bank lending standards between 2007 and now saying some of the issues were "eerily similar".

"I don't think the issues were all that different but broadly speaking the issues that were on the radar screen then - buoyant housing lending, commercial property lending standards - are all things that are on our agenda again.

"This time around we've been a bit more active and interventionist maybe than we were last time but I don't think the issues have particularly changed that much."

The former Treasury secretary, now chairman of the National Australia Bank, Ken Henry agreed Australia remained exposed to a new global shock.

And he revealed that in scenario planning in the lead up to the Wall Street collapse, the potential meltdown of the global financial system was not seen as a real possibility and that being locked out of financial markets was the main concern.

"We asked ourselves the question -  in what circumstances could that worry cause a real problem for Australia. And we came up with one and we thought it was so left field that there was no point worrying about it," Mr Henry told the conference.

"And you know what it was? A meltdown of the global financial system.  This remains a risk for Australia and our best protection is a strong public sector balance sheet, that's our best protection."

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