Today is the last day in the job for the chairman the Australian Prudential Regulation Authority (APRA), John Laker. As chairman for 11 years, Laker oversaw the rebuilding of APRA after Peter Costello gutted it following the HIH insurance collapse in 2011.

Laker’s tenure at APRA is widely regarded as a success and prima facie that is true. After HIH, APRA needed a steady hand to rebuild its credibility and Laker’s APRA can claim to have guided Australia comfortably through a global financial crisis that left other comparable regulators around the world with epochal egg on their faces. Despite some jitters in Australia, and the wholesale collapse of non-banks in the crisis, Australia’s financial system proved more robust than elsewhere.

As well, in the period following the GFC, APRA positively shined. As the primary bank regulator it played a key role in reforming the bank vulnerabilities that were exposed by the crisis. It did this largely by insisting that banks lend dollar-for-dollar against deposits. Unquestionably, Laker leaves the financial system more stable now than it was in 2008, something of which he can be rightly proud.

If Laker handled the GFC and its aftermath well, the same can’t be said for the period leading up to the crisis.

In 2003, Australian banks were halfway through a foreign-borrowing surge that extended right through 2008: 

When the GFC struck, these bank liabilities proved to be very vulnerable as external lenders refused to rollover loans. The result was a desperate scramble within Australian government circles to guarantee the loans. Laker was central to that bailout, which was necessary lest a current account crisis overtake Australia, yet it was also his APRA that had failed to foresee the crisis and allowed the huge offshore expansion in the first place.

A former APRA insider confessed as much at an industry conference in October 2012 when questioning the RBA’s Luci Ellis, who was trumpeting the preparedness of Australia’s financial regulators pre-crisis.

The failure to foresee the macro-economic implications of the rise of foreign debt is the primary driver of the rise of Australia’s too-big-to-fail banking cartel.

The resulting financial system is as deeply altered as it is unexamined in the wider debate. The major banks continue to trade on a government guarantee, recognised by ratings agencies in a two-notch upgrade to bank ratings; competition is structurally diminished, moral hazard rampant and the system unrecognisable from that envisaged by the last banking inquiry under Stan Wallis. In short, APRA handled a crisis well, but it was a crisis partly of its own making.

As Laker retires today, it is arguable that the lesson has not been learned. Although the financial press likes to bleat about how tough APRA rules continue to be, most especially around changes to the Basel III reform, the truth is the opposite. For the most part, APRA is holding at bay the global push to reform core bank capital allocation practices like the risk-weighting of assets. As well, even Australia’s persistent housing bubble inflates again. APRA is ignoring global moves to apply macroprudential tools — for example, capping the loan-to-valuation ratio of mortgages — as New Zealand and the United Kingdom have recently done, and as the IMF has recommended.

In sum, while nobody much has been hurt under Laker’s APRA, that’s mainly because the rules governing the system have been changed along the way. There appears no end to that in sight and that will be John Laker’s most lasting legacy.