APRA chairman Wayne Byres has told banks to prepare for the long haul and warned that the idea that the financial system will return to normal is “dangerously naïve”.
Mr Byres has warned that the COVID-19 crisis is far from over, even as countries and economies begin to bounce back from sweeping lockdown measures.
“One thing we all need to bear in mind as we deal with the immediate crisis is that, once we overcome the virus, the world will not simply pick up where it left off in January,” Mr Byres told the board of the International Banking Federation. “While I cannot predict its precise form, this crisis will almost certainly precipitate [an] enduring change in the way society operates.
“The idea that we’ll employ some temporary measures and then everything will ‘go back to normal’ is therefore a dangerously naïve one on which to base our decisions.”
Mr Byres cautioned banks on rushing to rebuild their capital buffers as unprecedented customer support measures and loan-loss provisions bite their bottom line, but conceded that APRA doesn’t have a “crystal ball” to predict the economic pathway and timetable for those buffers to be rebuilt.
“The best I can offer is that it should be as soon [as] circumstances reasonably allow, but no sooner,” Mr Byres said. “In Australia, I would point to the example of the way we allowed Australian banks to build up capital to meet their ‘unquestionably strong’ benchmarks in an orderly way over a number of years.
“We should not be complacent about the rebuild, but there are also risks from rushing it.”
The “real battle” for the financial sector is ahead, and Mr Byres also warned that the regulatory reforms that sprang from the GFC could be revamped as banks come under increasing scrutiny for their capital management capabilities.
“The post-2008 reforms will be properly tested, and inevitably we will find areas they can be improved,” Mr Byres said. “Before anyone misinterprets that comment, I am not advocating a watering down of the post-2008 reforms. It may in fact turn out they’re insufficient, and we need to do more. Maybe they just need to be reshaped a bit. I do not know.
“But inevitably there will be things we learn, and we should not allow a determination not to backtrack on reforms to deter us from improving them.”
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