Economic Insights by Clifford Bennett

APRA – Wrong Way! Go Back!

Property Club Property Market Insights

But no one is telling them!

Australia is the only country in the world that does not critique our central bank, the RBA, on policy at a senior banking level.

This means that debate in the mainstream financial media is significantly muted as a flow on consequence. Without robust debate, how can any country find the correct path forward? Well it probably can’t, which is why just about every other country in the world sees far more open criticism of their respective central bank than we do in Australia.

The reason Australia is again so far behind the rest of the world is because just the four big banks get to split amongst themselves the bulk of the RBA’s bond trading and other business. In fact, the RBA is in most cases the biggest customer of the bond trading desks of the big banks. No wonder the RBA seems to get away with major policy error after major policy error. There are indications that if one of the big four banks criticises the RBA, then the RBA will, purely by coincidence of course, suddenly start doing less business with that bank. Some major bank bond traders actually make their living from the RBA. So there‘s a strong direct internal impetus to avoid saying anything negative about the RBA… ever!

APRA clearly cannot read the signs

APRA clearly cannot read the signs

Which brings us not surprisingly, to APRA, which also has real direct power over the banks. Having worked in the banking sector at a senior level, I can just imagine how smoothly APRA is marketed to, even wined and dined by senior bankers. The last thing anyone from the banks, or any financial institution for that matter is ever going to do, is publicly offer even merely constructive criticism of APRA. Just like the RBA, they will not only be left to feel, but actually encouraged to feel they are geniuses. Of course, subtle influences are put in play should any action threaten the banks super profits.

Right now the lack of understanding at APRA as to how the housing market really operates, and what the key drivers are, is playing directly into the hands of the major four banks’ oligopoly. That is, price control by a handful of major players in a market, such as OPEC once was, and our banks still are.

This is why those of us who are pointing out how misguided and seriously harmful to the economy recent decisions by APRA are, are certainly in the minority. This issue is not receiving the media attention it deserves, because those who drive the financial media debate are the ones who most benefit from APRA’s ineptitude.

The banks will continue to happily accommodate APRA regarding more stringent borrowing requirements, just as they have the ineptitude of the RBA all these years. So just on this one point alone, Australian property prices will definitely continue to move higher. This move higher is very strong already for reasons I have previously outlined, but will now be even more powerful.

I can see APRA scratching its head in six months’ time – new construction falling, prices accelerating, ”maybe we should make it harder to borrow” they all again say to themselves! And the banks, well “Yes of course you are right APRA!”

Clifford Bennett