The Regulatory Roundabout

Speaking in New York, Prime Minister Morrison said:

that while it was important to implement the findings of the royal commission, as well as other reforms such as the Banking Executive Accountability Regime, “we need our banks to keep lending”.

Interesting comment from a Prime Minister whose immediate past job was as Treasurer who role, amongst other things, included the oversight of APRA, ASIC and the RBA.

So.  Let’s get this right.

The Prime Minister and the RBA want banks to lend more but ASIC doesn’t because of responsible lending policies which ….. ASIC wrote based on vague legislation passed by the Parliament.  Don’t believe TAFKAS?  Have a look at ASIC appealing their recent loss in the Westpac-Wagu-Shiraz case.

APRA impose additional capital and compliance requirements on banks which increase their costs of operation and cost of capital meaning that (everything else equal) the rates at which banks lend need to go up, but the Prime Minister, Treasurer and RBA complain about banks not passing on RBA rate decreases — as if the banks source the majority of their funding domestically in the first place.

The RBA and APRA prattle on about the costs and impacts of climate change and yet when the banks don’t lend on climate intensive projects, because of the costs and risks (most significantly regulatory and sovereign risk), the Prime Minister, Treasurer and other members of the government complain.

Where is Kafka when you need him?

Would it be too much to ask to put these people in a room to get a policy consensus and consistent position?  Ok.  With all the senior public servants involved, perhaps can we get them into the MCG to come to a consistent position.

And they wonder why businesses are returning funds to shareholders.  Who can do business in this insane asylum.

Oh and the Government wants, through APRA, to regulate the remuneration and appointment of people onto bank boards and executive positions.

The number of people in this world who could capably attempt to dance on this regulatory needle tip are so few, but yet the wise folk at APRA, most of whom have never worked in the private sector, let alone a bank, think they know best.

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5 Responses to The Regulatory Roundabout

  1. stackja

    Banks lost the plot when head office replaced local management with ‘experts’. Local management knew who was a good risk.

  2. Pyrmonter

    Yes, and no.

    Our banks benefit as much from the regulatory thickets as do the activists, the borrowers (ever tried to enforce a loan after it’s been referred to an ‘ombudsman’?), and, of course, all their borrowers. The upshot is that what seem sensible policies may be counterproductive. ‘Unfair loans’ may be debtors’ latest excuse for non-payment, but generally aren’t what a prudent bank would make anyway. ‘Increasing cost of funds’ … is a price signal that the banks are over-reliant on expectations of a LoLR facility being put in place if (when?) one of them fails. Oh, for a world where we could allow the banks to sort these things out directly with their customers; without the ever-present threat that the taxpayers will end up paying for the consequences of their mistakes.

  3. Pyrmonter

    (second ‘borrowers’ was meant to be ‘lawyers’)

  4. Tim Neilson

    ‘Unfair loans’ may be debtors’ latest excuse for non-payment, but generally aren’t what a prudent bank would make anyway.

    Indeed so. An “unfair” loan is one that the borrower wanted to draw down on but doesn’t want to pay back.

    Part of the regulatory complexity problem is that every time an activist judge issues a judgement that some profligate shouldn’t have to try to pay back the money that they borrowed and squandered, the banks put another clause in their lending documents to get the next profligate to contract out of that judgement.*

    Then the activists in the judiciary and in government have a go at thwarting these dastardly attempts to get borrowers to repay borrowed money.

    Thus the regulatory thicket gets worse.

    * E.g there was a decision that there was an “implied term” in a lending contract that the bank would effectively have to act like the lender’s indulgent parent rather than a third party contractor. The banks introduced clauses that required a prospective borrower to agree that in enforcing its rights the bank didn’t have to take account of the borrower’s interests, or be “reasonable” in any way, but could be totally arbitrary etc. – they’re known as the “absolute bastard clause”.

  5. Youngster

    I’m trying to get a loan so I can build an investment property. The banks say, with my current situation, I could not afford to repay the loan if rates increased by 2.5%.

    I know my financial situation. I understand the local property market. I have access to discounted building rates, and a discounted block of land. We are very frugal with our money, and live in regional Australia so we spend well below the HEM estimates. I know the risks. They are mine to take. I have less than 80% LVR, so the transaction is close to risk free for the bank.

    But APRA knows best, so we get no loan, the builder gets no project, a family keeps looking for a house to rent, and my equity sits there doing nothing.

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