We have to get the balance right in banking

Many speakers described how banking has settled in a different place after banks were humbled by Hayne and their customers were tested by COVID-19. Banks learned a lot about managing borrowers during the pandemic, when most mortgage holders repaid after getting loan deferrals, and the feared “mortgage cliff” as cheap COVID-19-era mortgages reset never happened.

No bank makes loans they don’t think will get repaid.

Westpac chief Peter King says unsecured lending and credit card customer delinquencies should be rising at this stage in the credit cycle, yet they are not. ANZ’s New Zealand boss, Antonia Watson, says personal and corporate borrowers used the pandemic to build up their balance sheets. And no bank makes loans they don’t think will get repaid, she says, and they don’t need prescriptive regulation to tell them that.

Last year, the Australian Prudential Regulation Authority stress tested the heavily mortgage-dependent against a collapse in jobs and house prices and found the banks pulled through intact and able to finance a recovery. APRA chairman John Lonsdale told the Summit that in 2025 the authority will widen its stress testing to find any “blind spots” for banking regulation in the wider economy or overseas, where danger could spill into the finance sector and trigger a greater crisis. Perhaps broader stress testing should mean greater confidence to take risks, not less.

But the reality is that making banks safer costs a lot, including not just expensive capital buffers they maintain against systemic risk, but these days the technology investment needed to tackle deliberate cyberattacks and scams. That means scale at a time when big banks and big bank profits are politically explosive.

Mr McEwan, who knows the “horror” of a loss-making bank, says that “when you are making money you are putting most of it back in”. The Australian Competition and Consumer Commission’s denial of ANZ’s takeover of SunCorp’s bank business was overturned by the Australian Competition Tribunal. ACCC chairwoman Gina Cass-Gottlieb says there should be fewer barriers to loan switching that would let in small players, pointing to the outsize effect Aussie Home Loans had on mortgage markets in the 1990s.

There has long been a cycle of regulation and liberalisation in the Australian banking industry. Banks already carry heavy regulatory burdens in areas like money laundering, which have claimed two recent chief executives. But in the famous 2019 “wagyu and shiraz” case, the Federal Court said customers could figure out for themselves that they would need to match their spending with their mortgage commitment. The banks’ essential function of credit and lending to grow the economy, and expand Australians’ lives, should not be the subject of prescriptive and overbearing rules.