Restricting reckless banks during a boom may be APRA's most important roles, APRA chairman John Laker said in his Sydney
speech yesterday.
Laker was endorsing the conclusions of an influential IMF
paper which says prudential supervision is "most valuable when it is least valued" - in the years before a crisis takes hold.
Laker said the crisis had shown it was most important for APRA to:
* continue and reinforce its "sceptical and questioning culture";
* maintain the intensity but increase the breadth of supervision; and
* do more "forward-looking analysis" of ADIs' strengths and frailties.
He also warned against "declaring victory", and warned that APRA faced problems funding necessary staff after 2011/12. And he flagged greater engagement with boards, saying APRA would particularly look to boards for clear statements of their appetite for risk.
But he argued APRA had performed well both before and during the crisis. And he defended APRA's late-1990s separation from the Reserve Bank, saying its "single mission" had removed distractions.
Laker echoed other analyses of the crisis when he said it had shown that problems in the financial system could be more important than problems within individual institutions.
He said new Basel III liquidity reforms, to be announced in the next few days, would ensure ADIs managed their liquidity risk more rigorously.
And he identified a particular challenge for APRA to "identify quickly the next generation of risky products and businesses".