Speaking at the AFR Banking & Wealth Summit in Sydney yesterday, APRA chair Wayne Byres defended his decision to further limit mortgage lending for residential property.
APRA wrote to authorised deposit-taking institutions last Friday telling them to limit interest-only lending to 30 per cent of total new residential mortgages.
The new requirement adds to the existing constraint on the banks, announced by APRA in December 2014, to limit the growth of investor loans to 10 per cent.
Mr Byres said the new measure is a "tactical response" to current market conditions and is intended to fulfil a recommendation of the Financial System Inquiry final report – namely, to ensure Australia's banks are "unquestionably strong" compared with their international peers.
The APRA chair pointed out that by "anyone's standard" Australia has a banking system that has a "notable concentration in housing".
"It is therefore important we give that issue particular attention as we think about how to put the concept of ‘unquestionably strong’ into practice," he said.
He was unapologetic about APRA's decision to go ahead with the new regulatory measures ahead of an agreement about the latest Basel Committee regulatory changes.
"The delays in Basel are unfortunate. There are only a few issues that remain subject to negotiation, but the fact they remain unresolved means they are obviously important issues," Mr Byres said.
"As much as we would like international policy deliberations to be complete, we do not think it right to defer a decision on this issue any longer.
"In moving ahead, we will be looking at many components of the capital adequacy framework, but given its position as the dominant asset on the balance sheet of the banking system, the adequacy of capital requirements for housing-related risks will be a critical part of that assessment.
"Beyond the recently-announced tactical responses to current conditions in the housing market, making sure the system is on a sound footing for the longer term is even more important.
"Put simply, the capital adequacy framework needs to address the concentration in housing lending that has built up in the banking system over time: if we are going to put an increasing number of eggs into a single basket, we’d better make sure that basket is a (unquestionably) strong one," he said.
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