Australia's banking regulator just compared itself to King Canute, saying it can't stop the house price tide

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Australia’s banking regulator likened itself to a historical figure in declaring property prices are well beyond its control.

“Whether prices go up or go down, we are, like King Canute, unable to hold back the tide,” Wayne Byres, the chairman of the Australian Prudential Regulation Authority said in a speech in Sydney on Friday referring to the medieval Danish king and the apocryphal anecdote demonstrating his piety.

“There are clear limits on the influence we have. Property prices are driven by a range of local and global factors that are well beyond our control.”

Byres comments are set in the context of a runaway housing boom that triggered concerns of financial stability risks amid record household indebtedness.

APRA’s mandate is to ensure the banking system can readily withstand the property market cycles without undue stress, he said.

Byres warned that tightening one credit channel may just redirect loan demand to lenders beyond the control of APRA. Entities that come under APRA’s purview had a 93% share of the $1.65 trillion Australian home loan market.

“Our goal is to make sure that whichever way prices are moving at any particular point in time in any particular location, prudentially-regulated lenders are alert to the property cycle and making sound lending decisions,” he said. “That is the best way to safeguard bank depositors and the stability of the financial system.”

Having said, APRA has been ratcheting up the intensity of its supervision of residential property lending over the past five years with the latest move just last month.

It directed banks to limit the flow of new interest-only lending to 30% of total new residential mortgage lending, as well as placing strict internal limits on the volume of interest-only lending loan-to-value ratios. It also urged banks to to restrain lending growth in higher risk segments and apply prudent buffers in assessing loan eligibility.

The first signs of the regulatory clampdown are already visible. Home loans to landlords rose 0.6% in March from February, the weakest rate since September, according to data from the Reserve Bank of Australia.

“Our earlier measures have helped slow the growth in investor lending and lift the quality of new lending,” Byres said. “As a result of our most recent guidance to lenders, we expect some further tightening to occur.”

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