The Federal Government has given the banking regulator APRA until the end of the year to ensure Australian banks are holding enough capital to weather financial storms.
Last week Westpac lifted its interest rate for home loans despite the ongoing period of RBA rate cuts and stability, and the Government is behind APRA applying the pressure on banks to make moves like these.
Recently, David Murray chaired an inquiry into the financial system and made a number of recommendations to improve financial stability in Australia, all which have been endorsed by the Government.
The main thrust of those recommendations were centred around beefing up the amount of capital banks hold to provide them with more of a buffer against loan losses.
The banking regulator has well and truly implemented these recommendations by now and will continue to take further strides to solidify the banking system in the country by the end of 2016.
David Murray’s most important recommendation was to ensure banks become unquestionably strong and that they held enough capital to place them in the top quartile of capitalised banks in the world.
It’s not just capital holdings that APRA are looking at, chairman Wayne Byres says asset quality, liquidity and funding are all issues that will be tightened to achieve the ‘unquestionably strong’ goal.
Credit Suisse analyst Jarrod Martin spoke to The Age and said the end of 2016 was a good time frame for banks who could build their capital through retained earnings rather than through more capital raisings.
The big four banks have raised more than $18 billion in equity capital this year alone and Mr Martin says they will need to raise another $16 billion by the end of 2016 to reach their goals.
Westpac are happy with the Government’s support of Mr Murray’s inquiry recommendations, after they blamed the tougher capital rules for their mortgage loan rate hike last week.
“We look forward to working with government, regulators and the Productivity Commission on implementation of the Government’s decisions,” Westpac said in The Age.