Opening statement to House of Representatives Standing Committee on Tax and Revenue - November 2021

Renée Roberts, Executive Director, Policy and Advice Division – Inquiry into Housing Affordability and Supply in Australia
 

Thank you for the opportunity to appear today. I am joined by my colleague, Gideon Holland, General Manager, Policy. APRA has made a submission to the Inquiry, which we hope is helpful in providing some context. 

In some brief opening remarks today, we wanted to explain APRA’s role in the financial regulatory system, our approach to regulating residential mortgage lending and our recent actions to address rising financial stability risks. 

• Firstly, APRA’s role. APRA supervises institutions across banking, insurance and superannuation. In regulating banks, APRA’s role is to set prudential requirements that are designed to protect the interests of depositors and promote financial system stability in Australia. We do this in close collaboration with other members of the Council of Financial Regulators.
   
• Secondly, APRA’s approach to regulating residential mortgage lending. In residential mortgage lending, APRA seeks to ensure that banks are making sound credit decisions that are appropriate, individually and in aggregate, in the context of broader housing market and economic trends. APRA’s prudential requirements, which are focused on lending practices, can influence the terms, amount and price at which banks extend housing finance. They do not target house prices or matters of affordability.  
   
• Lastly, APRA’s recent actions to address emerging risks to financial stability related to residential mortgage lending. Last month, we set an expectation that banks would assess new borrowers’ repayment capacity at lending rates that are at least 3 percentage points higher than those currently prevailing. APRA’s objective is to ensure the financial system remains safe, with banks lending to borrowers who can afford the level of debt they are taking on – both today and into the future. We expect the overall impact on aggregate housing credit growth flowing from this change to be fairly modest, since many borrowers do not borrow at their maximum capacity.

I’d also like to draw the Committee’s attention to an information paper we released last week, which set outs APRA’s framework for using macroprudential policy. Macroprudential policy is an essential part of APRA’s toolkit for promoting financial stability. Our recently published framework covers the risk factors

APRA uses to identify emerging threats to financial stability, the policy tools APRA can choose from, and the importance of consulting with other members of the Council of Financial Regulators as part of the decision-making process. 

With those opening remarks, we are happy to take your questions.