APRA admits 2007 property boom banking problems repeated
By AM business editor Peter Ryan
Updated
http://www.abc.net.au/news/2016-04-05/apra-boss-warns-of-complacency-of-new-gfc/7300392
The chairman of the banking regulator APRA says Australia can't be complacent about its ability to dodge another global financial crisis. Wayne Byres has told a conference in Sydney the regulator is more active and prepared to intervene than it was in the lead-up to the Wall Street meltdown in 2008.
Peter Ryan
Source: The World Today | Duration: 4min 29sec
Topics:markets, consumer-protection, australia
NICK GRIMM: The chairman of the banking regulator APRA says Australia can't be complacent about its ability to dodge another global financial crisis. Wayne Byres has told a conference in Sydney the regulator is more active and prepared to intervene than it was in the lead-up to the Wall Street meltdown in 2008. And the former treasury secretary Ken Henry says Australia remains exposed to a fresh GFC and that a strong government balance sheet is now more critical than ever. Our business editor Peter Ryan has been at the conference in Sydney and he joins me now.
Peter, so how does Wayne Byres regard Australia's resilience to another downturn?
PETER RYAN: Well Nick, first Mr Byres was not the APRA chief at the time of the Wall Street crash, but he says no-one should kid themselves that the worst of the fallout is over and that Australia didn't dodge the GFC without a healthy dose of luck. Now last year APRA forced banks to keep more capital on their books to improve their resilience to another shock which would most likely be external rather than local, especially when you consider the commodities crash and the potential for a hard economic landing in China. Wayne Byres think Australia's banks are well placed - better than they were in the GFC - but he told a conference hosted by the Australian Financial Review that a regulator's job is to worry.
WAYNE BYRES: 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, so it's better we continue to invest in building resilience now when it can be done in an orderly manner from a position of relative strength than to try and do so in more difficult times. So put simply, when adversity arrives and I think 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.
NICK GRIMM: The APRA chairman Wayne Byres. And Peter you also asked him about how close Australia's banks went to being badly damaged in that 2008 meltdown.
PETER RYAN: Yes, now this is in the context of last night's 7.30 program, where a story quoted a secret APRA report from 2007 that showed lax lending standards by banks, and the potential inability of borrowers to repay loans in a shock, could have caused a serious recession or a banking crisis. I asked Mr Byers what had changed in supervision between 2007 and now, and this was off his watch as APRA chairman, but Mr Byers said these days APRA is now more active and interventionist when it sees signs of poor lending standards.
WAYNE BYRES: If you go back and read my predecessor John Laker's speeches in 2006 and 2007, many of them are kind of almost eerily similar to some of the things that we've been saying recently. 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 that's just the financial cycle that we go through. 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.
NICK GRIMM: Wayne Byres, the APRA chairman there again. Peter we often think the major regulators are privy to information that the rest of us don't have access to. But the former treasury secretary Ken Henry meanwhile has revealed that's just not always the case.
PETER RYAN: That's right and Ken Henry is now chairman of the National Australia Bank, but as treasury secretary he was involved in scenario planning, along with the RBA governor Glenn Stevens on how Australia would withstand a global shock. Now even in the lead-up to the Lehman Brothers collapse in 2008 where there were some pretty big signs there, the worst case scenario of a global financial meltdown didn't appear to be that obvious. Ken Henry says at the time, the biggest worry was simply being locked out of global financial markets, which in hindsight was the tip of the iceberg.
KEN HENRY: 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. And you know what it was? A meltdown of the global financial system, right? This remains a risk for Australia and our best protection is a strong public sector balance sheet, that's our best protection.
NICK GRIMM: The NAB chairman Ken Henry and Peter Ryan our business editor was here in the studio with me.