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Opening statements

Opening Statement

Wednesday 22 October 2014

Wayne Byres, Chairman - Senate Standing Committee on Economics, Canberra

Thank you Chair, if you will bear with me, I would like to make a short opening statement on two issues of current interest.

The first concerns recent media reports regarding the potential introduction of so- called macroprudential measures in Australia. Recent comments in the Reserve Bank’s Financial Stability Review about emerging imbalances within the housing market, and the need to reinforce sound lending practices, has been interpreted in many instances as Australia being on the verge of macroprudential interventions of the type that have been instituted in a number of other jurisdictions around the world, such as hard limits on certain types of loans, or minimum deposit requirements for borrowers. While we are very much still in the investigation stage, and have not yet decided what further action we might need to take, I would like to make two points in response to the general commentary currently taking place:

  • First, within our regulatory framework APRA generally seeks to avoid outright prohibitions on activities where possible: instead, our regulatory philosophy is 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. That is not to say that we would never use the sorts of tools being employed elsewhere, but they are unlikely to be the first ones we reach for.

  • That brings me to my second point: responding to potential risks in the housing market in this way is not new. We see it as standard supervision. In the period from 2002 to 2004, for example, there was a similarly strong run-up in house prices, and similar concerns about higher risk lending and emerging imbalances. We’re doing now what we did then: collecting additional information, counselling the more aggressive lenders, and seeking assurances from Boards of our lenders that they are actively monitoring lending standards. We’re about to finalise guidance on what we see as sound mortgage lending practice, and we’ve conducted a comprehensive stress test of the largest lenders. The sources of risk are different this time around – last time we were focussed on low doc and no doc lending – but the response of higher supervisory intensity and regulatory requirements in the face of higher risk activity is not new. It is APRA doing its job.

The second issue I wanted to quickly mention was the recent publication of MySuper statistics. Earlier this month, APRA released its initial Quarterly MySuper Statistics reports, covering the four quarters ending September 2013 to June 2014.

These publications mark an important milestone in the Stronger Super reform process, and are part of a much broader and richer suite of superannuation publications that APRA is implementing. Over time, APRA will be publishing additional statistics for both MySuper and choice products, and also in respect of trustees and funds. The significantly enhanced transparency provided by APRA’s publications is expected to promote competition and efficiency within the superannuation sector. However, it is critically important that users of the statistics remember that long-term performance is the key determinant of members’ retirement outcomes and consider all aspects of the products that are provided - not just investment returns over short periods. For MySuper products in particular, it will be sometime yet before there is sufficient information available to assess the impact of the reforms in enhancing outcomes for members.

With those opening remarks, my colleagues and I would now be happy to answer your questions.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.