So why are banks lending to investors again???
APRA boss warns of complacency of new GFC
Peter Ryan
5 April 2016
Source: The World Today | Duration: 4min 29sec
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.
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.
APRA admits 2007 property boom banking problems repeated
The World Today
By AM business editor Peter Ryan
Updated
http://www.abc.net.au/news/2016-04-05/apra-admits-2007-property-boom-problems-repeated/7301046
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 last night's 7.30 program 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."
http://www.abc.net.au/news/2016-04-05/canberra-we-have-a-problem-apra/7301600