APRA’s chairman Wayne Byers gave his strongest signal yet that Australia’s prudential regulator believes it has the housing situation under control when he appeared before the Senate Standing Committee on Economics yesterday.
Byers, in a prepared opening statement, said that after the RBA mentioned “emerging imbalances” in the housing market in its recent Financial Stability Review, expectations had grown that APRA would be be introducing proscriptive limits on bank lending.
But, “within our regulatory framework APRA generally seeks to avoid outright prohibitions on activities where possible,” Byers said.
That mean no macro-prudential rules in the style of New Zealand or other jurisdictions.
Rather Byers said APRA’s preferred approach and its “regulatory philosophy” was to:
focus on institutions’ setting their own appetite for risk. We also use the regulatory capital framework to create incentives for prudent lending and ensure that, while institutions remain free to decide their lending parameters, those undertaking higher risk activities do so with commensurately higher capital requirements.
The SMH reports that during questions, Byers told the committee that “lending standards are being stretched” by competition.
He also confirmed that APRA had just completed a comprehensive stress test of the largest lenders “which was focused amongst other things on a significant housing downturn”.
He did not reveal the results.