ANZ chief executive Mike Smith has been a vocal contributor to the debate about Australian banking stirred up by the Murray Inquiry’s interim report and the suggestion that the majors need to hold more capital.
The AFR reports this morning that he hasn’t minced words, saying yesterday that the Murray Inquiry should not make any precise recommendations about the level of capital that banks should hold.
“APRA already have all the powers necessary to impose whatever capital that they wish on the banking system. It is a system inquiry at the end of the day, and we shouldn’t get bogged down in little things – it is important to have a broader perspective,” he said.
The point Smith is making is that he believes that as a once-in-a-decade inquiry, the recommendations that Murray and his fellow panelists make need to “stand the test of time”.
He added that the “idea that capital is the answer to everything misses the point that the fundamental thing about the strength of the financial system in this country is loss absorbency – that is what is important”.
That may sound a bit like a circular argument given that companies – banks in particular – hold capital to support their operations and precisely to absorb losses. But what Smith is doing is simply nuancing the argument about capital a little and effectively asking the question why current levels are not sufficient.
It is a more interesting and stronger approach than simple rhetoric that banks hold enough capital, as it throws the question back on the accusers that banks don’t hold enough.
But in the context of the current global debate it is likely to fall on deaf ears.
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