The head of Australia’s banking regulator says home lending practices during the latest property boom are “eerily similar” to the period before the global financial crisis.
The chairman of the Australian Prudential Regulation Authority, Wayne Byres, responded to Monday night’s 7.30 program on the ABC which revealed secret APRA documents from 2007 showing lax lending standards by banks at that time could have caused a banking crisis and recession.
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, but also acknowledged 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,” he said.
“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.”
Since late 2014, the banking regulator has tightened lending standards, especially for property investors, and forced the largest banks to hold more capital as reserves against potential bad home loans.
‘We shouldn’t kid ourselves’ that it ‘couldn’t occur here’
Mr Byers, who was not APRA chairman until 2014, also warned Australia should not be complacent about its ability to dodge another financial crisis.
“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,” he 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.”
‘Best protection is a strong public sector balance sheet’
Former Treasury secretary, now National Australia Bank chairman, Ken Henry agreed Australia remained exposed to a new global shock.
He also 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.”