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Financial Stability Risks In Home Loans Is Being Attempted To Be Dialed Down By Australia

Financial Stability Risks In Home Loans Is Being Attempted To Be Dialed Down By Australia
In Australia, as concerns about financial stability take center stage amid bubble risks in the nation's sizzling property market, the Australian government is seeking to broaden the powers of the country's prudential regulator to include non-bank lenders.
In the A$1.7 trillion ($1.33 trillion) mortgage market, the size of the country's economic output, the Australian Prudential Regulatory Authority (APRA) will be helped in dialing down some of the risky lending by a draft legislation released by the government on Monday and if it is passed.
Even as regulators force them to keep aside more capital and slow lending to speculative property investors, Australia’s four biggest banks have pulled away from institutional lending to real estate developers and have already cut back on home loans in recent months.
With their loan-books expanding at a much faster clip than the banking sector's 6.5 percent overall credit growth, non-bank lenders have been quick to pick up the slack. And as a combination of record-high property prices and stratospheric household debt sit uncomfortably with slow wages growth, this growing trend and development is stoking concerns for Australian authorities.
"APRA does not have powers over the lending activities of non-bank lenders, even where they materially contribute to financial stability risks," Treasurer Scott Morrison and financial services minister Kelly O'Dwyer said in a joint statement.
"Today, the government is releasing draft legislation for public consultation that will provide APRA with new powers. These new powers will allow APRA to manage the financial stability risks posed by the activities of non-bank lenders, complementing APRA's current powers."
The consultation of the draft bill will close on August 14.
Being relatively smaller than in a number of large economies and at around 6 percent of financial system assets, the size of Australia's shadow banking sector however is puny.
Dominated by the so called "Big Four" - Commonwealth Bank, Westpac, National Australia Bank and ANZ Banking Group, non-banks account for about 1 percent of Australian mortgage lending.
More than 80 percent of the country's lending and deposits is controlled by the quartet together.
In a bid to make the sector more competitive, the government was also seeking to lift the prohibition on the use of the word 'bank', Morrison and O'Dwyer said in a separate statement on Monday.
"New entrants to the Australian banking market face a simple but significant obstacle - the prohibition on the use of the word 'bank'," they said. "This acts to discourage innovative new
players from entering the market."
As it moves to make them "unquestionably strong" in the event of another global financial crisis, the APRA will announce new capital rules for major banks this week, local media is speculating separately.

Christopher J. Mitchell

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