By Leith van Onselen

Australian Prudential Regulatory Authority (APRA) head, Wayne Byres, has given testimony today to the Senate Standing Committee on Economics in Canberra, whereby he admitted that APRA had acted too late in addressing lending standards, which in some cases had fallen to “horribly low” levels that lacked “common sense”. From The AFR:

“We were a bit surprised by how much the competitive pressures in the industry and the competitive dynamic in the industry, had led people to do things, albeit at the margins but nonetheless, do things that were really in our view lacking in common sense”… “We had spent a lot of time in 2013 and 2014 reminding [Authorised deposit-taking institutions], reminding their management, reminding their boards, about the importance of lending standards, we sought assurances from boards that they were on top of these issues”, he said. Later in the hearing, Mr Byres defended APRA’s 10 per cent cap on housing investor credit growth against claims it was preventing some smaller lenders from competing aggressively in regional areas where house price growth was soft. He argued competition between banks had dragged loan standards to “horribly levels” in some areas… “With the benefit of hindsight, obviously we wish we got onto this a bit sooner, but we are where we are. If we act too soon we get accused of being too interventionist and managing institution, it’s a delicate balance to be had,” he said.

Unbelievable. For nearly four years, this site and others called for macro-prudential controls to prevent high risk mortgage lending, only to then face stiff resistance and ridicule from Australia’s policy makers, including the RBA and APRA.

Now they have belatedly acted to reign-in speculative investor lending well after the horse has already bolted.

It is APRA’s job to be “interventionist” and prudently manage risk. This necessarily involves preventative policies rather than the types of reactive policies we are experiencing currently, which are inherently pro-cyclical and risk exacerbating the downside as the Great Australian Housing Bubble bursts.

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