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COBA urges regulators to take care to avoid anti-competitive impacts on smaller banks with any potential macroprudential intervention. Any measures must be carefully targeted at a clearly identified problem so they do not disadvantage smaller banks and first home buyers.“Adequate consultation prior to intervention will reduce the risk of unintended consequences on smaller banks from any macroprudential measures,” said COBA CEO Michael Lawrence.
“The Council of Financial Regulators has today confirmed that possible macroprudential policy responses are under consideration and that ‘APRA will continue to consult with the Council on the implementation of any particular measure.’
“We also note comments by the Treasurer that ‘carefully targeted and timely adjustments are sometimes necessary’.
“However, the Treasurer also noted that ‘a positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner occupiers entering the market’.
“This is consistent with comments by APRA Chair Wayne Byres on 2 June 2021 about the pick-up in high LVR lending, associated with ‘a welcome increase in the proportion of first home buyers that have come into the market over the last 12 months.’
“As the APRA Chair said, ‘I think that’s a good outcome. So, yes, those borrowers tend to have higher LVRs, but I’m not sure that there’s any great value in us stomping on first home buyers who are trying to get into the market.’
“COBA endorses these views.
“Our sector’s focus on owner-occupiers and first home buyers is illustrated by our higher than system share of high LVR owner-occupier loans as a percentage of new loans and our sector’s 20 lenders on the First Home Loan Deposit Scheme panel. Our sector’s prudent approach is highlighted by the non-performing loans ratio, where we are tracking at around the third of the system rate.
“We look forward to seeing the forthcoming information paper from APRA setting out APRA’s framework for the use of macroprudential policy tools.”
This information paper is part of APRA’s response to the 2019 APRA Capability Review by Treasury which recommended ‘APRA should take a more transparent and assertive role in articulating the objectives of its macro-prudential policies, the design of the instruments chosen and assessment of its impacts, including on the broader areas of its mandate. APRA should continue to develop its public communication around the extent of systemic risks, conditions required for macro-prudential actions and assessments of any actions taken.’
COBA’s April 2019 submission to the APRA Capability Review noted that APRA’s earlier macroprudential measures had a significant impact on competition: ‘COBA accepts that macro-prudential measures play an important role in managing systemic risk, and such measures are likely to be used in future. In line with this, APRA should be more transparent around the potential macroprudential measures that could be used in future. APRA should also communicate and consult on these through public processes. This would ensure that there is adequate consideration of competition impacts and communication of policy objectives to regulated entities.’
The ACCC found in 2018 that was a clear impact on competition from APRA’s macroprudential measures and that the ‘lack of sensitivity to scale in the design of these regulatory measures has given a competitive advantage to the large banks.’