David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report entitled Review of the Australian Prudential Regulation Authority Annual Report 2016 together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—On 13 September of this year the Australian Prudential Regulation Authority appeared before the committee as part of the review of its performance and the strengths of Australia's financial and banking regulator. APRA explained its regulatory agenda, and in particular its activities to improve the resilience of banking institutions and to improve executive accountability through the government's proposed Banking Executive Accountability Regime. The committee scrutinised APRA on measures to reinforce sound lending practices to ensure that Australian banks remain prudentially strong and APRA's recent decision to establish a prudential inquiry into the Commonwealth Bank of Australia.

On 31 March this year, APRA provided the banks with guidance to limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending. The letter updated APRA's guidance from December 2014, which instructed banks to limit the growth of investor loans to 10 per cent. The purpose of APRA's guidance was to maintain a strong lending environment during a time of increased risk. In response, the major banks raised interest rates on both their new and existing interest-only loans, even though APRA's guidance was related to new loans and not existing loans. Further, the banks stated publicly that the interest rate increases were a result of APRA's new guidance. For example, on 27 June of this year, the Commonwealth Bank stated:

To meet our regulatory requirements, variable interest only home loan rates for owner-occupiers and investors will increase by 30 basis points.

Similar statements were made by Westpac and National Australia Bank. APRA was scrutinised on the extent to which it held the banks to account for the way they implemented the 30 per cent limit on new residential mortgage lending.

The ACCC's new roles and powers to investigate interest rate decisions, which flowed from a recommendation of this committee, will have a positive impact on competition in the banking sector and in making bank decisions more transparent to Australian consumers. Using these powers, the ACCC will be able to determine whether or not, in its view, any of the banks have made misleading statements in relation to recent interest rate decisions. The committee looks forward to the outcome of the ACCC's investigation on this matter and notes that it will be important for the ACCC to conduct granular analysis of the internal documents of the banks to determine whether or not those internal documents reflect the same outcomes as the banks stated publicly.

The government has responded to the recommendations of the committee's review of the four major banks, in particular the establishment of the BEAR. The BEAR will set out clear accountabilities and expected standards of behaviour for banking executives, will make it easier for APRA to disqualify executives and will impose financial penalties on authorised deposit-taking institutions that do not meet expectations.

The committee notes that significant changes are proposed to improve the governance and transparency in the superannuation industry and that APRA is supportive of these changes. The committee expects that, once the measures are implemented, APRA's supervision of superannuation funds will be greatly enhanced. The committee will closely monitor APRA's performance in this area in the future.

On behalf of the committee, I would like to thank the Chairman of APRA, Mr Wayne Byres, and his colleagues for appearing at the public hearing. I commend the report to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

I seek leave to make some short comments in respect of the report.

Leave granted.

After 600 days of the Turnbull government ignoring the pleas of victims of bank rip-offs, the pleas of whistleblowers who were saying that there were systematic problems in this industry and, indeed, the pleas of their own members of parliament and senators, with the Prime Minister saying, 'There's no need for a royal commission; everything's all right in the banking industry,' just last week the big four banks wrote to the Prime Minister requesting some form of royal commission. And what did the Prime Minister do? He rolled over immediately. He rolled over immediately and announced draft terms of reference that—we find out today—had been in the offing for some months now, but the Treasurer wasn't told about them. The Treasurer only found out a few days ago.

These terms of reference for the proposed royal commission represent the panic and ideological bent of this government, particularly against industry superannuation funds. This Prime Minister is seeking to malign the industry superannuation funds through these terms of reference, with not one skerrick of evidence that the industry superannuation funds have been involved in any of the scandals and rip-offs that have plagued the big four banks over the course of the last decade. He's seeking to malign every single industry super fund member in this country and, indeed, their boards of governance. There've been no rip-offs. There's been no evidence of any scandals involving industry superannuation funds. Yet the terms of reference of this proposed royal commission include the ideological agenda that this government has against industry superannuation funds and looking into their governance.

It represents the chaos and dysfunction of this government, and it looks nothing more than a dummy spit, to be honest. The Prime Minister spat the dummy from the fact that he's had to roll over on a royal commission. He said as much in the media conference that he gave last week in announcing this. He basically said, 'Well, if I have to have a royal commission, we're going to go after those union-backed industry superannuation funds.' It indicates the small-mindedness of this government.

In respect of the APRA hearings that were conducted by the Standing Committee on Economics, they perfectly represent why we need this royal commission into banking in this country. As the chair pointed out a moment ago, there were questions asked of Mr Byres, the Chairman of APRA, in respect of the behaviour of the big four banks in the wake of the new regulatory guidelines that were brought in to secure and reinforce sound residential mortgage lending practices. I'm talking, of course, of limiting the flow of interest-only lending to 30 per cent of new residential mortgage lending and mortgage lending to investors in such a manner as to comfortably remain below the previous 10 per cent benchmark.

In the wake of those decisions by APRA, what we saw was all the big four banks, almost immediately, at once, putting up their lending rates, using this as an excuse once again to make it more difficult for the average working family in this country and for small businesses. It was pointed out in the committee's draft report that CBA on 27 June, after these new prudential standards were released, in their media release stated:

To meet our regulatory requirements, variable interest only home loan rates for owner-occupiers and investors will increase by 30 basis points.

Westpac, on 20 June 2017, did a similar thing in lifting their mortgage lending rates. And the National Australia Bank, on 23 June 2017 in a media release, did exactly the same thing.

When we questioned Mr Byres about this, his comment was quite interesting. He said:

It's not a specific requirement that APRA has imposed, that they need to change interest rates.

So there's the view of the regulator: they don't need to change interest rates. But the banks took it upon themselves to do it. As they ordinarily do when these opportunities arise, the banks took it upon themselves to try and gouge their customers and make it harder for the average Australian small business and working family.

That's why we need a royal commission into banking in this country. It's clear from this report that the current regulatory system isn't working. If the banks can get away with doing this and no-one is there to pull them up on it then we sure do need a fair dinkum inquiry into banks and financial services in this country. Hopefully, we'll get it through this royal commission. But it's so sad and unfortunate that it took the banks requesting it from the Prime Minister to bring it about, not the pleas of victims and whistleblowers and, indeed, of many members and senators in this parliament. I look forward to, hopefully, seeing decent terms of reference for this inquiry and finally getting to the bottom of what has been going on in banking in this country and restoring confidence for customers, families and businesses.