Speaking before the board of the International Banking Federation, chair of the Australian Prudential Regulation Authority (APRA) Wayne Byres said that “this crisis will almost certainly precipitate enduring change in the way society operates”.
“The idea that we’ll employ some temporary measures and then everything will ‘go back to normal’ is therefore a dangerously naive one on which to base our decisions,” Mr Byres said.
“Flexibility and agility will be important — we have a long battle ahead.”
He announced that APRA’s focus will most definitely shift to ensuring “financial and operational resilience”.
“For the next little while, ensuring financial and operational resilience will be the priority, because the threats are substantial,” Mr Byres stressed.
“Until there are clear signs of an economic recovery and banks are able to generate capital from retained earnings, it is reasonable to expect supervisory scrutiny of capital management and stress testing results to remain very high.”
He noted also that reforms implemented in response to the global financial crisis will be “properly tested”, hinting at possible reforms.
“I am not advocating a watering down of the post-2008 reforms. It may in fact turn out they’re insufficient, and we need to do more. Maybe they just need to be reshaped a bit. I do not know,” he said.
“But, inevitably, there will be things we learn, and we should not allow a determination not to backtrack on reforms to deter us from improving them.”
Withdrawal of stimulus measures poses risk
In a separate address to the Senate committee tasked with overseeing the government’s response to COVID-19, Mr Byres admitted that APRA is very concerned about the additional risk to the economy caused by the withdrawal of stimulus measures, including JobKeeper and the loan deferral scheme, in September.
“I think that’s one of the biggest issues on our agenda at present,” Mr Byres admitted.
“It has been everyone pitching in to provide that six-month breathing space, in the hope that in six months things will be in a better place and many businesses will be able to go back to normal arrangements with their banking.
“But, on any sort of forecast, we know that that will not be 100 per cent of people who are currently getting a deferral. So, we do have to think about how that evolves.
“We can’t keep pretending that everything is in good shape if there are customers who are clearly not going to be able to repay their loans. But, equally, we don’t want to put pressure on a large group of customers at the wrong point in the cycle.”