APRA, Basel Committee: Another GFC is coming

by Julia Corderoy06 Apr 2016
Both the global banking regulator and Australia’s banking regulator have warned another financial crisis is imminent.

Speaking at the Australian Financial Review (AFR) Banking and Wealth Summit in Sydney yesterday, Bill Coen, the secretary-general of the Basel Committee on Banking Supervision, the global banking regulator, said another global financial crisis is “statistically certain”. 

“As regulators, our focus is invariably on the downside risks rather than the upside. I'm an optimist by nature but maybe a pessimist by fact and experience. We know with statistical certainty there will be another financial crisis,” Coen said.

Echoing Coen’s warning, Wayne Byres, the chairman of Australian banking regulator APRA, said it is not a matter of “if” but “when”.

“When adversity arrives – and it will, it is not ‘if’, it will – to the extent possible we want the banking system to help alleviate rather than exacerbate problems. Ideally act as a shock absorber not an amplifier.”

Byres said this is why it is important to build strength and resilience now. 

“The main message I want to talk about today is that it is better we continue to invest in building resilience now when it can be done in an orderly manner from a position of relative strength than try to do so in more difficult times.”

Last year, the regulator announced an increase in the amount of capital required to be held by lenders against residential mortgages. This resulted in the big four banks raising more than $18 billion combined in new equity from shareholders.

APRA also enforced a limit on investment lending and warned it would be keeping a close watch on credit asessments. 

Byres said capital requirements were likely to continue to move higher in 2016, amongst other regulatory work, to ensure our Australian banks are “unquestionably strong”, as recommended by the Murray Financial System Inquiry (FSI).

“Achieving this objective will involve work in four broad areas, and take the next several years to fully implement,” Byres told the summit.

“The four areas I have highlighted are: reinforcing capital strength; improving the stability of liquidity and funding profiles; enhancing both the public and private sectors’ readiness for adversity; and strengthening the risk culture within the financial system.”

According to Coen, increasing bank resilience in good times is the “most efficient and effective” way of dealing with periods of stress. 

“The message here is caution against complacency,” Coen said.
 

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