The Australian Prudential Regulation Authority (APRA) has released Wayne Byres' last speech as the regulator's chair after eight years in the role.
The speech, delivered to the participants of FINSIA's “In conversation with Wayne Byres” event, included the chair's few reflections on some of the themes that have dominated his tenure and drew out lessons for the future.
Starting with capital, Byres said careful thought is crucial when addressing proposals that the strength of the [bank capital] framework should simply be watered down, or some special interest should get favourable treatment.
“Quite often, they involve attempts to have the financial system provide (implicit) subsidies. My own view is that if projects and activities stack up economically, they will attract finance and investment. If they cannot, and there is a desire to subsidise them to ensure they proceed, then that is a matter for governments, not prudential authorities,” he said.
Focusing on community expectations and responsibilities, Byres said he expects underinsurance issues to grow and the provision of financial services to be restrained if the providers of financial services are continually deemed responsible for poor consumer choices.
He added: “In recent years, I suspect the expectation in the minds of many in the community (and in financial markets, for that matter) that governments will backstop bad outcomes has only grown. Not only is it not always possible, but it risks creating a moral hazard in which the downside of risk-taking is underestimated at best and ignored at worst.
“All that might sound like a slightly odd message coming from someone who is tasked with protecting the community. But in the long run, if we do not get the balance right, it will deliver an inefficient financial system and a net loss to the community as a whole.”
Byres has called for Australian policy settings to be considered against the backdrop that there is no prefunded deposit or policyholder insurance scheme or resolution fund in the country that can be used in resolving a failing financial institution to protect taxpayers.
