Banks 1, Murray nil. Even before we get the Abbott government’s decisions on what it will do with the report from the Murray inquiry into the financial system (mostly ignore as too hard, judging by the way other reviews have been treated). But this morning, APRA, the lead bank regulator, gave the big banks a big win on their lobbying against the Murray proposal to force the banks to hold more capital to match offshore levels. In a paper issued early this morning, APRA said it “does not intend to tightly tie Australian capital adequacy requirements to a continually moving international benchmark”. Murray’s first recommendation was that for our banks to be regarded as “unquestionably strong” they should have capital ratios that position them in the top quartile of internationally active banks. But APRA said this morning it “regards the top quartile positioning as a useful ‘sense check’ of the strength of the Australian framework,” but nothing more.
Banks will have to make some allowances as APRA moves to force them to hold more capital against various classes of assets (including home mortgages), but nowhere near as much as what Murray was suggesting. The bonuses and other rewards for management will be safer, and returns on equity won’t be all that disturbed and shareholders will be happy. The big four banks have already started building their capital reserves by selling assets. Soon we will get branch closures and job losses. Keep an eye on the housing boom. -- Glenn Dyer