David Murray has again warned banks about complacency, and says his Financial System Inquiry needs to ensure banks are ready for an inevitable market correction.
“The post-crisis monetary settings have distorted asset prices again,” Murray said, according to The Australian Financial Review. “That is going to cause a correction at some point, which will put more political pressure on financial systems.”
When the reign of accommodative monetary stimulus ends and interest rates begin to rise, Murray said the potential for a fall in share and property prices could leave the banks with significant losses.
In his interim report, Murray labelled the sharp increase in housing lending a “systematic risk” to the Australian economy. He suggested that banks be required to hold higher levels of capital against money lent out, to insure this risk against market corrections.
With the big banks recording massive profits this year – CBA
reported the highest profit for an Australian bank, ever – then Murray’s suggestion to hold more capital might be making them sweat.
The banks are fighting against the stricter capital rules – which were designed after the collapse of European and US banks during the GFC – saying they aren’t necessary because Australian banks were more resilient during the GFC.
But it is this complacency which Murray is concerned about. The AFR
reported that Murray said Australia was in a regulatory “quandary” because it “didn’t appear to be damaged by the  crisis” but “we now need to strengthen the system in some ways.”