Day 530: 'Root cause of many problems'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 530.
Today in summary: APRA is expected to announce a change in the way bank capital requirements are calculated, Bendigo and Adelaide Bank has backed APRA’s proposal to loosen lending requirements; the Insurance Council of Australia is “open” to a cap on broker commissions if it can avoid a total ban; and FINSIA president David Gall has called for professionalism of the industry as he steps down from the role after four years.
-- Alex
@AlexESampson
Current banker panic level: 🤑🤑😓👩🎓
Please don’t keep The Inquisition to yourself. Forward this email to your colleagues and encourage them to sign up for free here.
APRA is expected to announce a change in the way bank capital requirements are calculated in the coming weeks, according to reports in the AFR. Under a proposal it put out in 2018, banks would be able to vary risk weights to mortgages. Smaller banks would be allowed to apply risk weights of just 20% for the lowest-risk mortgages, allowing them to charge a lower and more competitive interest rate, amid allegations from the Customer Owned Banking Association that the big four have been “cream skimming” low-risk mortgages for too long.
Meanwhile, APRA changes to executive pay are also expected after the release of a consultation paper in the coming weeks.
Bendigo and Adelaide Bank, which yesterday learned its long serving chair Robert Johanson was resigning, has backed APRA’s proposal to loosen lending requirements. Incoming chair Jacqueline Hey has supported the banking regulator's plan to let lenders set their own minimum interest rate floor.
Earlier this month APRA suggested ditching a rule that meant all new mortgage customers were assessed on their ability to manage repayments with 7.25% interest rates, which would lift borrowing capacity. APRA has called for feedback on the idea and Hey used her first few days on the job to throw her support behind the idea.
The Insurance Council of Australia is “open” to a cap on broker commissions if it can avoid a total ban. The insurance lobby group, in a submission to the Australian Competition and Consumer Commission filed this week, defended commissions as being simple, short term and “not like other financial products”.
It did concede that it could support a cap on commissions paid to brokers if that meant avoiding an outright ban on conflicted remuneration. The National Insurance Brokers Association opposed the ban.
FINSIA president David Gall this week stepped down from his role after four years and called for increased professionalism of the industry. The senior NAB executive was recently promoted to the role of chief customer officer of corporate and institutional banking. Gall said it was time to grapple with issues raised by the royal commission and restore the trust in an industry. He emphasised the importance of investment in ongoing education to restore the “very highest” professional standards.
Gall said:
“We have seen instances of misconduct and where we have not lived up to community expectations. This is a leadership opportunity for us all, one that we should actively embrace.”
🔥🔥🔥
Today’s burn prize: Consumer Action Law Centre
“Conflicted remuneration is a root cause of many problems exposed at the financial services royal commission. A blanket ban would simplify the law, reduce the risk of regulatory arbitrage and close the loopholes which have been created through industry lobbying.”
Responding to ACCC consultation on banning broker commissions for insurance products Consumer Action said conflicted remuneration should be banned for all general insurance products.
The Commentariat
APRA’s efforts to make it easier to borrow is not its best work, writes UNSW Economics Professor Richard Holden in The Conversation.
“Macroprudential regulation is a profoundly important tool for ensuring against large financial risks. It is particularly important in property-obsessed Australia. But it is important to get it right.”
This is an introductory service while we’re building a comprehensive daily paid online publication, coming soon.
We’re not here to offer opinion, simply to cut through the noise, and help you make sense of the emerging policy and market trends you need to be across. We call it pure intel. You can read more about us here.