The Australian Prudential Regulation Authority (APRA) has set out its framework for the use of policy measures to mitigate risks at a system-wide level to promote the stability of the country’s financial system.
Chair of APRA, Wayne Byres said the macroprudential policy measures were unlike the targeted actions APRA took to shore up the soundness and stability of the individual banks, insurers and superannuation licensees it supervised.
“Unlike our day-to-day supervision of individual entities, macroprudential policies allow us to target risks to the entire financial system; whether it be curbing excessive risk-taking in a buoyant market, or conversely encouraging investment and economic activity during a downturn,” Mr Byres said.
“APRA has a wide range of tools it could potentially deploy in such circumstances,” he said.
Mr Byres said APRA’s Macroprudential Policy Framework Information Paper outlined the framework it used when assessing whether macroprudential intervention was appropriate and which tools would best achieve the Authority’s intended outcome.
“The Paper covers the risk factors APRA uses to identify emerging threats to financial stability, the policy tools APRA can choose from, and the importance of consulting with other members of the Council of Financial Regulators as part of the decision-making process,” he said.
“(It) is intended to give financial industry stakeholders a better understanding of the factors APRA considers in making decisions to use these tools, the types of macroprudential measures APRA could deploy in the future, and how they might be implemented.”
The APRA Chair said in conjunction with the Information Paper, APRA had commenced a consultation into an update to APS 220 Credit Risk Management (APS 220), which would require banks to ensure they could implement limits on higher risk residential mortgage and commercial property lending in a timely and effective manner.
Mr Byres said submissions on the consultation were open until 28 February next year.
APRA’s 27-page Information Paper can be accessed at this PS News link.
