In a nutshell to expose mortgage fraud would crash the system and make a mockery

of regulators............

Should any inquiry find systemic wrongdoing on the part of banks this would lead S&P to "revise some of our current assessments because that would suggest there are elements of greater risk in the banking system than what we had considered," he said.

 Australian banks the best regulated in the world: S&P

Australian Financial ReviewNov 29 2017 6:23 PM

James Eyers

 International ratings agency S&P Global Ratings says existing laws and regulations governing Australia's banks are the strongest in the world, and does not believe there has been any systemic manipulation of rules to warrant a parliamentary investigation into the sector. On the other hand, any inquiry will create a big distraction for management, it argues.

 Separately, in a briefing for bank investors on Wednesday, S&P repeated its warning that there was a one-in-three chance over the next two years it would reduce its view on the level of government support for the banks in a crisis – a move that would trigger a downgrade to bank credit ratings and, other things being equal, push up funding costs and potentially interest rates across the economy.

 Any downgrade of its assessment of government support in a crisis from "highly supportive" to "supportive"

would be prompted if the government indicated that it was willing to accept a recommendation of the

financial system inquiry to introduce a "loss absorbing framework" for failing banks, in line with

international practice, where some countries have provided bail-in mechanisms for senior debt holders to

take taxpayers off the hook for the costs of a crisis.

 With the parliament expected to soon pass a bill to trigger a banking commission, S&P's director of financial institution ratings Sharad Jain said on Wednesday that overall bank regulation in Australia was "of a very high quality". He said: "We think it is as good as anywhere else globally."

 When S&P "looks at banks governance and risk management, notwithstanding some recent lapses, we also consider they are of high order," Mr Jain added.

 "We do not see any systematic manipulation of rules and regulations in order to benefit the earnings of the banks. That is our view. If there are some stakeholders looking at different information, or the same information with a different perspective, and they do consider an inquiry is called for, that is a decision for them to take."

 Should any inquiry find systemic wrongdoing on the part of banks this would lead S&P to "revise some of our current assessments because that would suggest there are elements of greater risk in the banking system than what we had considered," he said.

 S&P would also monitor an inquiry's recommendations to see if they restricted banks' pricing power. Mr Jain said this could encourage banks to take on more risk to maintain returns.

 After former Australian Securities and Investments Commission chairman Greg Medcraft described hybrid

bank instruments as "ridiculous" investments for retail investors, S&P confirmed its "very strong belief" that

in a crisis, hybrids would be required to absorb losses, either through coupon deferral, write downs or

conversion to worthless equity.

Too big to fail

S&P confirmed that there was nothing in the new bill currently before the parliament increasing the

crisis resolution powers of the Australian Prudential and Regulation Authority that would make it

question its assessment of government supportiveness.  The comments pushed back on fears stirred by

fringe party the Citizens Electoral Council of Australia in recent weeks that the bill could might allow APRA to

seize deposits in a crisis.

They also came as the Greens pushed for amendments to the terms of reference for a banking commission of inquiry to scrutinise the issue of banks being 'too-big-to-fail' and the operation of the Financial Claims Scheme, which insures deposits up to $250,000.

The federal government's $6 billion bank levy and APRA's new target for "unquestionably strong" capital of 10.5 per cent had no impact on how S&P views the outlooks for the banks.

Nor does S&P believe fintech disruption will cause any headaches for the major banks because they are more likely to embrace any new technologies given that senior management are all over the issue.

 And as Commonwealth Bank moved on Wednesday to tighten its loan criteria, Mr Jain reiterated S&P's view that there would be an "orderly slowdown" of property markets.

 It expects house price growth to slow, but to remain positive in both nominal and real terms, because the key conditions that have supported prices – a benign economic outlook, supply and demand dynamics, and low interest rates – remain in place.

 However, Mr Jain warned Labor's negative gearing taxation changes, or new restrictions by the China government restricting capital outflows, remained risks, although "it is hard to predict by how much each element could have an impact".