"Now is not the time to wind back the clock on financial safety"
The Australian Prudential Regulation Authority (APRA) has reiterated its commitment to continuously review and finetune its prudential framework to balance safety with dynamism, amid the banking sector’s concerns regarding current regulatory settings.
In a speech at the Australian Banking Association (ABA) Conference, APRA chair John Lonsdale (pictured above) acknowledged the growing sentiment within the banking industry that regulations have become overly stringent, potentially stifling credit flow and innovation.
“There is a view that the regulatory pendulum has swung too far towards safety at the expense of dynamism and considered risk-taking,” Lonsdale said. “The narrative suggests that regulators, including APRA, should consider loosening constraints to boost the flow of credit, especially for new business ventures.
“The question of whether or not the current regulatory settings remain appropriate as economic conditions evolve is a legitimate matter for debate.”
While Lonsdale recognised the merit in reassessing regulations, he stressed the importance of a strong, stable banking system to protect the community and support economic growth. Reflecting on historical context, he pointed out that current regulatory measures are the result of lessons learned from past financial crises.
These events, he said, underscore the necessity of robust regulatory frameworks to prevent banking failures and protect taxpayers from costly bailouts. He cited the strength of Australia’s banking system during the recent global turmoil as a testament to the effectiveness of these regulations.
“My purpose in addressing you today is not to argue that APRA’s prudential framework for banks is flawless. It’s not, which is why we are constantly reviewing and fine-tuning our settings, such as the current consultation on liquidity and capital requirements,” Lonsdale told the audience of the conference attended by banking industry stakeholders.
“Rather, I want to defend the importance of a strong, stable and resilient banking system – not only to protect the community and taxpayers, but also to support a thriving economy.”
Lonsdale argued against loosening standards, citing a recent APRA stress test indicating that Australian banks could withstand severe financial shocks without breaching prudential requirements.
Addressing concerns about access to credit, he pointed to the current economic environment, marked by rising house prices and interest rates, as the primary reasons for reduced borrowing capacity. He said APRA remains committed to maintaining safety while supporting economic growth, indicating openness to regulatory adjustments where justified.
“APRA is actively seeking ways to make our regulatory framework simpler, more proportionate and easier to comply with,” Lonsdale said. “But we will not take risks that might compromise stability or the ability of our banks to keep credit flowing to support the economy.
“With last month’s federal budget forecasting a weaker global and domestic economic outlook and with risks in the environment increasing, now is not the time to wind back the clock on financial safety.”
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