Regulators on keeping the financial system robust post COVID-19 support
Regulators will “lean in” as well as collectively act now to ensure that the country won’t “hit a cliff” once government support and bank moratoriums on mortgage and business repayments ends in September.
APRA chair Wayne Byres and AISC chair James Shipton made this assessment as they were speaking at FINSIA’s webinar forum: The Regulators: Priorities Updated.
Speakers also included Reserve Bank governor Philip Lowe and FINSIA’s Chris Whitehead and Victoria Weekes.
They acknowledged the challenge in ensuring that financial system remained robust post the COVID-19 support.
To date, the banks collectively have $5 billion in COVID-19 overlay.
Anecdotal data from RFi Group to date suggests that 2 in 5 customers indicate their income has decreased as a result of COVID-19 and not surprisingly, the proportion is higher among younger customers.
For Byres the outlook is one of a “fast moving crisis” in a “rapidly evolving situation” highlighting that “at this stage we don’t’ have enough knowledge about the situation”.
Nevertheless he remains focused on the post September challenge.
“Clearly we want to make sure that we don’t hit a cliff and all the support disappears at once when the economy, borrowers, the banking and financial system is not ready to deal with that.”
This will all be dependent on how the re-opening of Australia is panning out and the economic impacts.
“September and October is October is actually still a long way away. We will have a lot more information about the situation then to understand the nature of the problem better.
For ASIC’s Shipton there are strategies that collectively can be done by regulators and the industry now.
“Yes there is uncertainty ahead but there are things we can do now to try and manage for the future,” Shipton said.
These include banks checking in with their customers to better understand their situation both in the present and in the future and to remain aware of circumstances changing.
“All of us need to collectively lean into this challenge. All of us will need to help and assist Australians navigate their way through it.”
There were a number of [priorities] we deferred but that doesn’t mean we won’t act on them, James Shipton, ASIC
Shipton also provided further insight into how ASIC is helping lenders adapt to the changing requirements of serviceability given the heightened uncertainty around employment and income.
For Shipton this will be tackled through the “prism of our regulatory handle which is the responsible lending obligations”.
“We believe that there has always been enough inherent discretion and flexibility in those largely principled based obligations for lenders to apply their best discretion in different circumstances,” he said.
He acknowledged that the principles-based framework is now being put to the utmost test but we believes it still provides enough flexibility for lenders to exercise their judgment, in order to make the correct decision.
“The correct decision ultimately will be a credit one and a commercial decision by the bank and by the lenders, which, of course, is there’s to make.”
Shipton and Byres also addressed their approach once the pandemic eases particularly as they have already announced a pause on a number of piece of regulation.
“There were a number of [priorities] we deferred but that doesn’t mean we won’t act on them,” Shipton said.
“In fact, it a core priority for us to revisit these issues. There will be lessons learned through this extreme environment.
“We are going to be very attentive with how regulation performed during this particular point of crisis and perhaps adjust our approach when addressing the issues that have been deferred,” the ASIC chair said.
This could mean the scope for improving on some of the regulation that has been shelved.
Byres also said the prudential regulator will also be reflecting on what it has learned over the last couple of months.
“I think some of these policies won't change but will be reinforced by the current events such as bank capital which has proved that is more important than ever.”
Other areas of interest will be around operational resilience and even work culture.
Offshoring could also come under focus
“The financial services sector has increasingly been using third party providers and APRA has learned a lot about resilience from these providers and it is something we may look at as we set up the regulatory framework”.