Big Four at risk: APRA
(27 June 2016 – Australia) According to the country’s finance and banking regulator, Australia’s four major lenders could fall if the industry was hit by a large external threat.
Speaking at a banking industry forum last week, the Australian Prudential Regulatory Authority’s (APRA) head of supervision says that as a consequence of the major banks’ dominance, they are “hugely exposed” to each other.
APRA’s supervision general manager Charles Littrell said the Big Four were “in the same business model — they’re all hugely exposed to each other.”
“Inevitably if you bet 80 percent of the market, any trading market, you’re 80 percent of each other’s books," Littrell said.
"We don’t quite know what would happen if that business model gets whacked by external stress all at once.”
In the past, Littrell has highlighted that there is a “perpetual concern” in regards to the big banks’ dominance in property lending, where they have a combined market share of approximately 80 percent, double the figure 20 years ago.
Speaking at the Centre for International Finance and Regulation Showcase in Banking last Thursday, Littrell noted there had been a crackdown on lending in the commercial real estate sector.
The regulator had been working with Treasury, the Reserve Bank and the Australian Securities and Investments Commission, he said.
“Behind the scenes, there’s a lot of work ... on ‘well if the fundamental assumptions we have made about how the economy works don’t turn out to be right, what do we do’,” he said. “The answer is, we’re off in a space in terms of asset valuations, and interest rates, and wealth, and leverage that we’ve never been in as a country before, and that tends to make us think more conservatively than usual about what our settings should be.”