Banks Attack APRA's New Rules On Mortgage Lending Risk

Getty/ Matt King

An interesting convergence of regulatory attacks this morning with the SMH reporting that ANZ’s chief executive Mike Smith is sounding a little more conciliatory than normal.

Yesterday, as head of the G20 financing forum, Smith noted that banks and bankers need to re-earn trust if they have any chance of rolling back some of the new regulations that have been and are being put in place around the globe by regulators at the moment.

But in a plea which sounds a lot like “I only crashed my car because the police weren’t there to stop me speeding” defence, Smith said that it wasn’t insufficient regulation on banks but ineffective prudential supervision which caused the financial crisis.

It’s an interesting comment which segues nicely with an Australian Bankers Association (ABA) submission to APRA, reported in the AFR this morning, which says that APRA’s new mortgage lending credit risk management guidelines under APRA’s CPG 223 are too prescriptive.

The ABA says that the new rules, which are very detailed about the what, how, why and where Australian ADIs need to manage their mortgage credit risk exposure, will encourage a “tick a box” mentality.

But Mike Smith’s comment about supervision seems to be key to the renewed push by APRA into the nitty gritty of mortgage lending.

The key undertone in CPG 223 and the broader new cross industry guidelines on risk management by its regulated institutions under CPS 220 is that boards are going to be held more accountable and to this end, what gets measured (CPG 223), gets managed.

The submission says: “It should be remembered that it is as much in the [bank’s] interest to manage credit risk on residential mortgage lending prudently as it is in the interests of the economy.”

Unfortunately, as Mike Smith also pointed out, that might have been true in Australia but in other jurisdictions like the United States trust was lost as it seems short-term incentives outweighed longer term credit risk management and mitigation motivations.

APRA and its global colleagues might give way on some points but clearly the trend to more regulation, unless or until trust is rebuilt, will continue.

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