Good afternoon, and welcome to day 551.
Today in summary: Westpac has done a speedy backflip on changes to its lending practices; Jane Hume has put a dampener on rumours she has superannuation reform on her priority list; APRA is investigating the country’s biggest financial groups over their climate change mitigation strategies; and the Bank of England kept its main interest rate on hold at 0.75% yesterday.
-- Alex
@AlexESampson
Current banker panic level: 😟🙄🌦😑
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Westpac has done speedy backflip on changes to its lending practices.
In May APRA began consulting on possible revisions to its guidance on the serviceability assessments for lenders. APRA has proposed removing its guidance that ADIs should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7%. Instead, ADIs would be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.
But Westpac went ahead and changed its minimum interest floor earlier this week to 6.5% from 7.25%, effective immediately, without approval from APRA.
Westpac infuriated the prudential regulator after it went rogue and released a handbrake on residential property lending that has been in place across all Australian banks since 2014. A spokesman for APRA told the AFR it was surprised a big four bank had lowered the serviceability floor before the consultation process.
New Coalition financial services minister Jane Hume has put a dampener on rumours she has superannuation reform on her priority list. Hume, who was once a senior policy adviser AustralianSuper, told delegates at a Bloomberg Buy Side Forum in Sydney yesterday there were no plans to change the taxes on superannuation when Parliament returns. She said big changes has already been implemented by the previous government in 2016.
Hume took questions about Facebook’s Libra cryptocurrency and said consumers were likely to be cautious based on the social media giant’s previous high-profile privacy breaches.
APRA is investigating the country’s biggest financial groups over their climate change mitigation strategies, APRA member Geoff Summerhayes told delegates at an insurance forum in Singapore today.
Summerhayes said the regulator was intending to “probe the entities we regulate on their risk identification, measurement and mitigation strategies”.
The Bank of England kept its main interest rate on hold at 0.75% yesterday and warned that Brexit worries and global trade tensions were weighing on growth. Australia’s interest rate was reduced earlier this month to 1.25% and banks are still grappling with passing on the cut.
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Today’s burn prize: Bank of England governor Mark Carney
“The Bank of England approaches Libra with an open mind but not an open door.”
Carney used a speech in London today to raise concerns over Facebook's plan to launch its own cryptocurrency, Libra, and warned consumer protections would have to be of the “highest standard”.
The Commentariat
Payment systems require a level of liquidity backstopping that no private entity can provide, writes Columbia Law School Comparative Law Professor Katharina Pistor. Pistor questions whether governments around the world understand the risks to financial stability that system such as Facebook’s newly announced Libra would entail
“Silence in response to Facebook’s announcement this week is tantamount to endorsing its dangerous new venture. Governments must not allow private, profit-seeking parties to put the entire global financial system at risk. If banks are “too big to fail,” then states definitely are. If governments fail to protect us from Facebook’s latest act of hubris, we will all pay the price for it.”
Facebook’s Libra is pretty raw and incomplete, writes Bloomberg opinion columnist Elaine Ou.
“I spent an afternoon installing Libra with the goal of creating my own digital asset, and it was not an empowering experience. Most of the features were unavailable or unimplemented, and there was little functionality beyond the ability to place fake coins in a wallet. It's odd that a company like Facebook would release software in such a state.”
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