Day 423: 'Supervisors have a lot to watch over'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 423.
Today in summary: APRA chair Wayne Byres says bank boards and senior management are primarily responsible for misconduct, not regulators; experts who weathered the banking overhaul in the UK have advice for Australia; and the Coalition has introduced legislation to establish the A$2 billion Australian Business Securitisation Fund.
-- Alex
@AlexESampson
Current banker panic level: 😐 😐
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1. APRA chairman Wayne Byres has said the primary responsibility for banking and financial misconduct rests with boards and senior management of banks, rather than regulators. In a speech to global prudential supervisors at the Financial Stability Institute Executives’ Meeting of East Asia-Pacific Central Banks in Sydney, Byres said the culture of a bank could not be prescribed and regulators were doing their best to generate change.
“To state the obvious, prudential supervisors can’t be everywhere. ... In the case of banking, we have around 135 frontline supervisors covering 143 authorised deposit-takers ... Those organisations collectively employ over a quarter of a million staff and have aggregate assets of more than $4.7 trillion ... supervisors have a lot to watch over.”
2. British historian Niall Ferguson has warned that heavy banking regulation is "illusionary", arguing the time spent tightening regulation in the US and Europe after the 2008 global financial crisis was not well invested. Ferguson told the AFR:
"Although we've made banks better capitalised in the West — that's about the only way in which we've made the system more stable than it was before 2008."
Australian politicians, regulators and banks are also being warned by British politicians who presided over the UK’s Parliamentary Commission on Banking Standards to move quickly on the banking royal commission’s recommendations and not lose focus on reform. UK commission members wrote in a joint statement:
"Almost 18 months on, there are already signs that memories of the events that prompted the creation of the commission are growing hazy, and that, as banks recover their strength and self-confidence, their support for reform is also growing weaker."
3. The Coalition has introduced legislation to establish the A$2 billion Australian Business Securitisation Fund, aimed at funding small and medium-sized businesses at more competitive rates. In a statement, Treasurer Josh Frydenberg and Minister for Small and Family Business Michaelia Cash said:
“The Securitisation Fund will unlock a competitive funding source for smaller lenders, allowing them to compete with the major banks and on-lend to small and medium-sized businesses on more competitive terms.”
Today’s burn prize: Oxford University professor of financial regulation Daniel Awrey
🔥🔥🔥
"News of banks ripping off customers can cause share prices to rise, because that type of behaviour benefits shareholders.”
Awrey, who advised the Vickers banking inquiry in the UK, reflects on Australia’s banking woes and comments that the dynamics of the banking world are often off-balance.
The Commentariat
Home loan comparison website Lendi CEO David Hyman writes in the AFR that Hayne’s recommendations on mortgage brokers regarding fee-for-service will not make the sky fall in, and argues that fees-for-service should be applied to both brokers and lenders in order to maintain competition in the market.
“We're not in uncharted territory here. The Netherlands introduced a total ban on payment of upfront and trail commission in 2013 following the fallout from the global financial crisis. What followed was a customer pays fee-for-service model that applies across both lenders and brokers (and is tax deductible). In the following five years, mortgage broker market share has been broadly stable (after a slight drop after the ban) and there is a vibrant and competitive mortgage market.”
Competition Economists Group director Dr Tom Hird argues that the sky will fall in on mortgage brokers, writing that customers won't commit to an upfront fee before receiving broking services, and nothing will stop them buying directly from the bank. Hird argues changes to the existing fee structure will only reduce competition between the banks, raising margins on the A$1.7 trillion of Australian home loans.
“If the recommendations on mortgage broking are implemented, then the royal commission will likely end up raising the big banks' profits. Notwithstanding sound economic reasons why most consumers will be unwilling to pay upfront broking fees, the recommendations would make commissions to mortgage brokers illegal and effectively kill the industry.”
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