MAJOR CHANGES TO AUSTRALIAN PRUDENTIAL REGULATION

C O N F I D E N T I A L MELBOURNE 000072

NOFORN
SIPDIS

E.O. 12958: DECL: 06/19/2019
TAGS: EFIN ECON ETRD AS
SUBJECT: MAJOR CHANGES TO AUSTRALIAN PRUDENTIAL REGULATION
UNLIKELY

Classified By: Justin Kolbeck, Pol/Econ Officer for reasons 1.4(b),(d)

Summary
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1. (C/NF) The Australian Prudential Regulation Authority's
(APRA) senior banking regulator said that changes to
Australia's regulation infrastructure will be minor and in
line with global consensus. While Australia's major banks
remain healthy, there is still substantial debate about
whether the banking system here has returned to business as
usual. End Summary.

Major Changes Unlikely
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2. (C/NF) At a June 12 forum in Melbourne hosted by the
Harvard Club of Victoria, Wayne Byres, Executive General
Manager for APRA's Diversified Institutions Division said
that changes to Australia's regulatory structure will be
small, but in line with global consensus. Byres, who had
just returned from a World Bank/IMF/Fed conference in
Washington, said that there is some debate about whether
banks need to be smaller. He believes, however, that the
international regulatory community is moving toward making
banks safer via higher capital requirements. As the primary
regulator for Australia's big four banks (ANZ, NAB, Westpac
and the Commonwealth Bank) and others, Byres believes that
existing banking regulation in Australia is robust, though he
noted that the financial crisis in Australia will not be
officially over until the big banks stop making use of the
GOA's banking guarantee.


3. (C/NF) Former Prime Minister Malcolm Fraser, who was in
the audience, asked Byres when the Australian bank guarantees
would likely be lifted. Byres acknowledged that removing the
retail deposit guarantee will be "very, very difficult," but
noted that there are already encouraging signs that banks are
becoming more independent. Rick Sawers, a co-panelist and
senior executive from the National Australia Bank (NAB),said
that the big four banks are already making non-guaranteed
institutional loans under profitable terms. Sawers
contended, however, that Australia's smaller banks still need
the guarantees to operate.

Consolidation Ahead?
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4. (C/NF) There is still substantial debate in Melbourne over
the extent to which Australia has seen the worst of the
global slowdown. Ric Battellino, Deputy Governor for the
Reserve Bank of Australia (RBA) and a co-panelist, argued
that the "financial side" of the crisis in Australia has
passed, and that the country is now facing the after-effects.
Byres, however, said that small and medium size businesses
are still struggling. This is a sentiment we have heard from
other contacts. Innes Willox, International Director for the
Australian Industry Group, told pol/econoff that many smaller
businesses in Victoria have been unable to secure financing
and are being swallowed by large enterprises. According to
Willox, this trend has been particularly strong in the
commercial real estate sector. NAB's Sawers admitted that
his bank had "lost its appetite" for property risk.

Comment
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5. (C) Post continues to hear conflicting accounts about
whether commercial lending is returning to normal in
Australia. Bankers tell us that lending operations are
healthy, but admit that they have reached a quota on the real
estate and automotive sectors. Small business owners say
lending terms are too tough for the current economic climate
in Australia. There remains a strong self-congratulatory
sentiment here that the Australian banks have sailed through
the worst of crisis thanks largely to a strong, centralized
regulatory authority (APRA) and sage decisions not to lower
lending standards to unsafe levels. End comment.
THURSTON