Short-term market share and profit targets bother APRA

Senior APRA figure Wayne Byres has warned that responses to the global financial crisis must increase support for supervision, not just focus on more regulation.

"There are lots of rule changes being debated and implemented," he told a seminar this week. "But it is less easy to see how the role of supervisors is being supported and strengthened."

"This is something that needs ongoing attention in the global debate… strengthening the rules will not be enough to prevent another crisis."

Byres' concerns are shared by the IMF, which has emphasised the need for supervisors who can "say 'no'" when necessary.

Byres, who is executive general manager in charge of supervising the major banks and other "diversified institutions" at the Australian Prudential Regulation Authority, was addressing a CEDA seminar in Melbourne, on Tuesday.

He directed most of his comments to the global response to the crisis. But his comments also suggest APRA hopes to use the crisis to strengthen political, media and public support for tough action against any risky behaviour by Australian banks and other institutions in the coming years.

He told the seminar that to act against vulnerabilities in the years ahead supervisors would need "shrewd, practical commonsense, spirited initiative, resourcefulness, fortitude and determination".

"In the years leading up to the crisis," he added, "it is clear these attributes did not exist in sufficient qualities within the world's supervisory community."

Byres also said APRA was seeing new instances of "ambitious return targets and growth aspirations that don't seem to match the underlying environment", and of "banks with business plans founded on market share targets rather than risk-return trade-offs."  

APRA also saw "instances of credit standards reduced, because to not do so would cede business to a competitor," he said.

"The key question remains as to whether supervisors have the gumption to do their job as the community expects," he concluded.