Banks may be getting set for the next reckless credit boom, APRA chief Wayne Byres cautioned in a speech yesterday.Speaking in Hong Kong, Byres considered a principal legacy of the recent crisis."The expectation of a government backstop has been one area where, unfortunately but necessarily, expectation has been matched by reality," he said."Some governments were even forced to bail out the holders of capital instruments. And by allowing over-leveraged banks to strengthen their balance sheets by shedding assets and constraining lending, rather than being more forcefully recapitalised, we have seen shareholders effectively bailed out, too. "If this remains the prevailing expectation, then we have an even bigger problem than we thought: not only will markets fail to adequately act as a disciplining device, but they will continue to encourage and reward excessive risk-taking. "The costly misallocation of credit will again be the result," Byres said.The APRA chief framed this discussion in a rendition of the disinterest of many competent investors in the periodic disclosure of banks on their credit risks."As an ally for the supervisor, market discipline has tended to be a fickle friend," he said."Of course, we always knew there were limits to this form of discipline. Retail depositors, even if not protected by deposit insurance or other similar arrangements, cannot be expected to actively monitor the credit quality of their bank, and inevitably rely on the (explicit or implicit) backstop of the government. "And at the other end of the spectrum, we have learnt the hard way that sophisticated investors may well have undertaken more complex analysis but, at least for the largest institutions, reached the same conclusion - that by virtue of these firms being 'too-big-to-fail', they too could rely on the backstop of the government. "This meant, during the pre-crisis good times, investors - debt as well as equity - seem to perversely reward banks on the basis of 'capital efficiency' (ie minimisation) ahead of 'capital sufficiency'."