Australia’s banking regulator has expressed “perpetual concern” about the dominance of Australia’s big four banks in the lending market.
Charles Littrell, Australian Prudential Regulation Authority (APRA) supervision general manager told a Centre for International Finance and Regulation showcase event on Thursday, “In 1990, the four major banks had 40 per cent of the banking market; now they’ve got 80 per cent”
“They’re all in the same business model, they’re all hugely exposed to each other … and we don’t quite know what would happen if that business model gets whacked by external stress all at once.”
The warning is timely given Britain’s decision to exit the EU today, shaking global finance markets.
Also of concern by the regulator is the big four’s exposure to residential housing loans. “It is a significant issue of concern to us that close to two-thirds of balance sheets are exposed to property…mainly housing loans,”
Australia has the highest level of household debt in the world.
It is expected the regulator will impose greater capital requirements in the next wave of reforms due by the end of the year.
In 2012, the International Monetary Fund (IMF) highlighted identical concerns about the concentration and interconnectedness of Australia’s big four banks. (‘Too big to fail‘).
Under a stress test scenario conducted by APRA in 2014, the big four banks would have been insolvent if they were unable to access further capital, highlighting the need to bolster the banks with further capital. (‘Have the Big 4 just flunked APRA’s stress test?‘)
» Surprise jolt could bring down big four banks, says regulator APRA – The Herald Sun, 24th June 2016.
» Regulator dials up pressure on banks’ real estate lending – The Australian, 24th June 2016.
» IMF: Bank capital needs to be ‘substantially higher’ to prevent banking crisis – Who crashed the economy?, 24th June 2015.