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Parliamentary Joint Committee on Corporations and Financial Services
16/02/2016
Impairment of customer loans

BRENNAN, Mr Patrick, General Manager, Policy Development, Australian Prudential Regulation Authority

GRUMMITT, Mr Neil, General Manager, Credit and Operational Risk Services, Australian Prudential Regulation Authority

SCOTT, Mr Warren, General Counsel, Australian Prudential Regulation Authority

CHAIR: I welcome officers from APRA. Thank you for attending today's hearing. Would you like to make a short opening statement before we proceed to questions?

Mr Grummitt : We understand the committee is interested in hearing from APRA on two broad questions. The first is, consistent with the committee's terms of reference, the obligations of ADIs subject to APRA's standards on impaired assets. The second is the learnings that APRA has taken from the experience of Bankwest.

APRA's requirements in relation to impaired assets are set out in Prudential standard APS 220: credit quality. This document is available on our website, so I will not recite extracts in this statement. The key requirement for today's purposes is that ADIs must have policies and procedures to ensure timely and reliable recognition of impaired facilities and the appropriate provisioning for loss. The basic framework within APS 220 was established in the aftermath of the 1990s recession and, in our view, has stood the test of time quite well. There is little in APS 220 that is particularly prescriptive. Rather, APS 220 is a statement of commonly acknowledged good practice.

That said, there are a few themes worth highlighting. First, the definition of impairment is simple and broad. A loan is impaired if there is doubt, supported by objective evidence, over the timely collection of the full amount of cash flows contracted to be received. Thus, the assessment of impairment is ultimately a question of experienced credit judgement about the future. Second, the identification of impairment must be timely. Third, impairment is a dynamic concept. Lenders should consider all relevant changes, including changes to the value of collateral and other covenants. Fourth, recognition of impairment drives the establishment of provisions held against the value of the loan. Appropriate provisioning is critical for ensuring ADIs' capital, the foundation of depositor protection, is correctly measured. But impairment does not otherwise determine how the customer facility is managed. Our experience is that, given the costs of foreclosure, lenders will usually look to assist customers who find themselves in temporary financial hardship. APRA's only concern is that forbearance is not used to hide or defer problems that should be faced up to.

From these points, hopefully it is clear that judgement plays a key role in determining when an asset is impaired and that whether an asset is judged impaired will be dependent on the circumstances at the time. APRA's supervision activities are directed towards ensuring, within this principles based framework, that ADIs have appropriate policies for identifying, reporting and providing for impaired facilities.

Let me quickly turn now to Bankwest. Bankwest was acquired by the HBOS group in 1995, initially as a 51 per cent shareholder, before subsequently moving to 100 per cent ownership. Amongst other things, Bankwest was used as a vehicle for HBOS to demonstrate growth potential beyond its core UK market. The bank therefore pursued an aggressive expansion strategy. In doing so, it was supported by the funding and broader financial strength of the HBOS group. This broad strategy was not uncommon. Indeed, a key source of competition in the Australian financial system since deregulation has been foreign banks seeking to use their 'financial muscle' to win market share. Some have been successful, some less so, but that is the competitive market at work. A key attribute of such a strategy, and important to APRA's supervision, is that the parent bank acts as a source of strength for the local operation. For much of Bankwest's existence, this was the case. However, with the onset of the financial crisis, HBOS became a source of risk for the Australian operation. The group's difficulties raised concerns about its ability to continue funding a large part of the Bankwest balance sheet.

Shortly before its own acquisition by Lloyds, HBOS sold Bankwest to reduce its balance sheet and preserve its own funding. With this experience in mind, APRA still looks for parent banks and parent supervisors that understand the strategy of their Australian subsidiaries and can be a source of strength when needed. But we have reduced the weight we place on potential parental support in our supervisory assessments and increased the weight we place on the stand-alone capacity of the local subsidiary. In doing so, we do not wish to limit the competitive benefits that foreign banks bring, but equally we need to recognise that reliance on parental support can expose the Australian system to other risks when the parent experiences stress. With that broad introduction, we would be happy to answer any questions that the committee may have.

CHAIR: Thank you very much. We appreciate your opening statement and your being here to answer some questions for us. Many of the lending institutions we have spoken to have spoken about the obligations that they have, particularly to the depositor. We have been given graphs showing the hierarchy of people who take priority. We look at some companies who have been defaulted, resulting in the loss of 700 jobs in a community, and yet to an observer it appears as though they were viable companies, but there was technically a default. Given that the bank has already made provisions for bad debts, has APRA ever looked at the community impact of that hierarchy of needs, to give banks an obligation to consider the impact of their decisions as opposed to just default, saying, 'We must protect the depositor as our first and foremost duty'?

Mr Grummitt : I think the answer to that question is no. That is not the way we would see our mandate.

Mr RUDDOCK: I would like to follow that up. You would not have heard the earlier evidence that we had today, but I was talking about what I understood to be your role. I spoke about the need to protect the shareholders of banks and the depositors of banks, to keep them strong and viable. I asked the academic we were speaking to what your obligations to the borrowers are. He gave me a view that you should have some responsibility to the borrowers. What do you see as your responsibility to the borrowers? Or is it not in your act, and should we include it as an obligation you should consider?

Mr Grummitt : In terms of APRA's role, we see it as most directly about depositor protection, which speaks to the financial soundness of banks. So that does work on both sides of the balance sheet. Clearly, you want a situation where in the first place banks are properly assessing credit and are not providing credit to borrowers who should not be provided credit. Then, in any lending arrangement, clearly there will be good customers who have bad luck and the facility becomes impaired in some way. Then the obligation for the bank is to try to work that exposure, if possible, back to performing status. But if that is not possible then it is sensible to try to bring that to conclusion. But our experience is that banks, if anything, are incented to defer the recognition of impairment. They are certainly not incented to overstate levels of impairment, so our supervision really is directed to making sure that banks are providing credit and managing that credit once they have provided it in a prudent fashion.

Mr RUDDOCK: I hear what you say and it seems to be your thinking. I am interested in your statutory obligations. I am interested, when you make the observations that you do about your expectations of where the banks might be, as to how you deal with the issue, which is being put to us, that the banks have not behaved in relation to impaired loans in the way in which you have articulated it. I say to myself, 'What is your statutory obligation in supervising borrowings, as distinct from the depositors' and shareholders' interests, that would require you to look at those matters?' And, if there is not, should we look at giving you that responsibility, or, in relation to ASIC, whether they should have it or whether, in fact, it should be with the body that has always been protecting consumer interests and was removed from the task: the ACCC?

Mr Grummitt : I think our primary statutory obligation is to depositors and to financial stability. My personal view is that we do not need an additional statutory obligation specifically devoted to the treatment of individual borrowers through that resolution—

Mr RUDDOCK: You do not need it because you do it? How have you investigated the matters that have been raised with us?

Mr Grummitt : The answer to your question is: we do not do it.

Mr Scott : Senator, you are right; it is not in our statute right now to look at the bank's relationship with borrowers. APRA is, right now, not statutorily mandated to protect borrowers. We are a prudential regulator and, as Neil said, we are interested mainly in protecting depositors and financial stability. If parliament were of the mind to have APRA have the responsibility of also protecting borrowers, that would present us with somewhat of a dilemma in that we would have a conflict in whose interests are paramount. As you said, there are other regulatory bodies who have that mandate. If you posited that responsibility with APRA as a prudential regulator, we would be in a position of conflict which would be very difficult to maintain.

CHAIR: Gentlemen, can I take you to the issue of financial stability. We had evidence earlier, from Dr Mark McGovern, looking at the whole financial system. In his view the focus on ASIC versus the focus on the financial side was driving a gap, particularly in the agri sector, and he felt that we should be looking to have incentives to drive productive use of capital as opposed to speculative use of capital. Has APRA done any work to look at whether indeed there are some weaknesses developing in our financial system, as proposed by Dr McGovern, and particularly any work to look at how we make capital productive as part of a stable financial system?

Mr Grummitt : Not to my knowledge. We have not done any work on that.

CHAIR: Okay. In terms of the conduct of the banks—again coming back to this issue of stability and looking after the depositors—we see a lot of evidence showing that banks, when they are lending, will look at evaluation criteria where they will give instructions to somebody to do a simple drive-past valuation or perhaps value a property development on the basis of the sale of individual units, which maximises the amount they can lend. That links into the studies you have done about remuneration structures and things that incentivise the way banks work. But the instant they want to take it to their credit management, they issue instructions to sell in one line or to look at a very short term sale, which drastically impacts on the LVR and undermines the stability of the market, because once one property price collapses you start seeing a ripple effect with many others. That goes directly to your remit of financial stability. Have you done any work to look at what impact there would be if banks were constrained to use a consistent method of evaluation as opposed to being able to pick and choose which method they would wish to use?

Mr Grummitt : I do not believe we have done any formal work. I personally would be a little concerned about proposals that might restrict the way banks manage that process too much. Clearly, there may be grounds for some intervention in terms of the bank versus the borrower situation in an environment where—when you get to that point, the bank has a lot of power. But we would have to be very careful about restrictions that actually meant banks were not able to act prudently through that process. Once the bank has identified a problem asset and has reached the conclusion that they are not able to restructure that facility or otherwise manage it back to health, we just need to be very careful about restrictions that would, in fact, increase the level of losses for the banks in the longer term.

CHAIR: The issue for business is that you are saying banks have to be able to act swiftly. Banks will tell us they often work with clients for months or years to help them recover. But part of that working with them is often the imposition of penalties or having the business pay for revaluations, forensic accounts and other things, which directly impacts the viability of the business. If the bank can spend three months, two years or whatever period—from APRA's perspective, what would be the consequence of putting in a minimum time frame that if the bank were concerned they would have to say, 'You have three months to find another lender to take over this mortgage or we are going to start putting in forensic accountants et cetera.'

Mr Grummitt : If I did say that it is an APRA requirement that banks act swiftly, that was not my intention. It would really be getting to your previous question more about restrictions on how they might do a valuation, which I think was your specific question. In terms of some kind of three-month stay, off the top of my head that does not sound especially onerous. My understanding is that banks will work with customers, yes, for a long time if they can see that they can actually restore that customer to a performing customer or restructure the facility in some way. Banks certainly do not have an incentive to take what are healthy or recoverable facilities and default them. In a general sense, that is not an incentive that is in the system.

CHAIR: The report by Lawrence Tomlinson to the UK parliament made a very specific case to show that in some cases where there is an asset-rich business, there is in fact a short-term incentive for a bank to default a customer. Does APRA have a view on the veracity of the Tomlinson report?

Mr Grummitt : We were advised yesterday that the committee was interested in the Tomlinson report. We have not thoroughly reviewed the report, but I have a couple of comments on the report. I made the comment that generally we do not think there is an incentive for banks to overstate impairments. I think it is also true that even in good times, when you get to that point where the customer and the bank are likely to disagree—and when you find yourself, as I think the report was dealing with, in the situation in the UK post crisis so that you are actually in a stressed environment—then the potential for that kind of disagreement is enhanced. There is no doubt about that. I think one of the recommendations—I think the terminology that was posed in the report was 'solutions'—was a comment about trying to address the relative power imbalance when you get to that point. As I said a few minutes ago, I think that is stating the obvious. If you are talking about a bank against a small to medium enterprise, at that point of the arrangement the bank is in a very powerful position. I think that is probably the extent of our comments on that.

CHAIR: Could you take this on notice. Could you come back to the committee with your recommendations for a way forward to resolve that power imbalance? Would something like the Takeovers Panel model work, or extending the powers of the FOS? What does APRA think would help the banks balance their duty to the depositors but get rid of what the Murray inquiry called the unfair contract provisions in that imbalance of power? The banks are clearly going to say, 'We have to comply with APRA,' so, if you could help the community by giving us an APRA thought bubble as to what might be a way forward, that would be very useful. We will go to Senator Ketter.

Senator KETTER: Mr Grummitt, I am astounded that you do not really have a considered view on the Tomlinson report, which is something that I would have thought went to the issue of APS 220, which you identified in your opening statement as an area of your statutory responsibility. The Tomlinson report in the UK goes into some detail about the mechanisms by which a business might be put into default by a bank, such as engineering a default in relation to loan-to-value ratios.

In your opening statement, you say that there is not very much that is prescriptive in APS 220, but you provided in your first point there a definition of 'impairment' as being something that is 'ultimately a question of experienced credit judgement'. If that judgement is not being exercised in a way that could be considered objective, why isn't APRA concerned about that?

Mr Grummitt : The first point to make in answer to that question is that you have to draw a distinction between the recognition of impairment and how a customer's facility is managed. As I said in the opening statement, APS 220 and APRA's general supervision are, as a first-order issue, very much directed to the recognition of impairment and providing a provision against that impairment.

Senator KETTER: But the definition of 'impairment' is what I think is of concern. It is very much a topical issue—

Mr Grummitt : Yes.

Senator KETTER: and I would have thought that, with all of the media interest in this particular issue, you might have considered reports like the Tomlinson report. So you are telling us that you have not given any consideration to these potential mechanisms to engineer defaults that I have referred to?

Mr Grummitt : I would not say it was correct that we had given no consideration to it. I think a more correct statement is that, in our supervision, we have not seen any systemic evidence that banks are overstating impairments—that they are actually taking customers to which that definition of impairment would not apply and forcing impairments, if you like. The whole history of banking and the way that the system works means that, if anything, there is an incentive for banks to not recognise impairment, rather than the other way around.

Senator KETTER: To form that view that you had not seen any evidence of it, what investigations did you do? How did you come to that conclusion?

Mr Grummitt : That is a factor of our on-site supervision, where we are periodically visiting banks, looking at their policies and procedures, looking at how they impair assets and how they set provisions against those assets. That does not mean that we dispute any individual finding in terms of a particular bank and a particular borrower and how that facility is managed after that. Our focus is that earlier piece, the recognition of impairment. In the second piece we do not get down to looking at individual cases of how a bank may have acted with a particular borrower.

Senator KETTER: So you are more concerned about systemic issues?

Mr Grummitt : When I use 'systemic' in that sense it is across the whole bank rather than across the whole financial system. We are more interested in systemic issues at that level rather than actually trying to get in and second-guess the bank about how it has handled a particular customer facility.

Senator KETTER: Have you had the opportunity to look at a document—which is in our briefing pack—in relation to the levels of Bankwest impairments and write-downs in the CBA?

Mr Grummitt : I do not think I have seen that document.

Mr RUDDOCK: What page is that?

Senator KETTER: Page 63. Mr Grummitt, is that table familiar to you?

Mr Grummitt : That table is not familiar to me in terms of the numbers, but there is no reason to doubt its veracity.

Senator KETTER: And I take you to financial year 10 in that graph. You will see a spike in the loan impairment expense accounting provision. Do you have any comments to make about that?

Mr Grummitt : In terms of the pattern you see in that chart, you would see a similar pattern for many banks in Australia. Post-crisis there was a higher level of impairment across the Australian economy. I cannot talk particularly about the size of the jumps for Bankwest relative to other banks, but certainly the pattern after the crisis—and it takes a little while to materialise—and the fact that you might have had impairments peaking at around that time would be a consistent pattern across the industry. I am sorry; that is probably all I can comment.

Mr RUDDOCK: The pattern is understood. The scale is something where there are differences of view. You are dealing only with the pattern. You are not commenting on the scale, are you?

Mr Grummitt : I am not commenting on the scale. I do not have any particular knowledge of Bankwest.

Mr RUDDOCK: I think the scale is the only thing that is relevant.

Senator KETTER: In relation to changes to the Basel requirements which took effect from 1 January 2009: what impact, if any, do you say that those changes may have had to the levels of impairment that we see around that time?

Mr Grummitt : No impact. I have seen reported in the media some statements that said that effectively it was extending CBA's advanced accreditation across Bankwest, and that provided an incentive to increase the level of impairments. I cannot think of any reason that would be the case. I have asked a few colleagues around APRA as well and no-one can think of any reason why that would be true. Obviously, someone has that view, but it is not a view we understand.

Mr Brennan : In terms of a bank extending its advanced model accreditation across a newly acquired subsidiary, that does not happen at the point of acquisition. There is a process to go through to make sure that is valid. Off the top of my head, I am not sure when it happened with CBA, but I am sure it was not in 2009.

Mr RUDDOCK: I am trying to understand your involvement in these matters. I hope I do not demonstrate too much ignorance on my own part. I notice in your statement you say that Bankwest pursued an aggressive expansion strategy. When banks do that, in terms of the proportions of funds that they have to keep in various forms, for the major banks you offer advice—don't you—as to how much they should have in deposits and shares and how much they can lend into particular fields.

Mr Grummitt : I would not characterise our interactions with the banks as offering advice. We will certainly have dialogues—

Mr RUDDOCK: Not advice? I thought you almost dictated the proportions that they had to have in various forms.

Mr Scott : We have prudential standards that deal with that.

Mr RUDDOCK: Prudential standards? That is a nice way of describing it.

Mr Scott : Right. Those prudential standards apply to all banks. It will apply to banks differently.

Mr RUDDOCK: That is what I am trying to get at: the prudential standards—now that I have the language right—applying to Bankwest's aggressive strategy. Were they lending far more to high-risk commercial properties than other banks that may have come to your attention?

Mr Grummitt : What was very clear about their expansion strategy is that they were expanding geographically into the eastern states from their base. That was a very noticeable part of their strategy. I think it is probably true to say that if you are effectively a new entrant into a market where there are big, established players you probably are picking up a somewhat riskier lending customer profile. The extent to which the Bankwest profile was riskier than any of the major banks, I do not know. The other aspect of the Bankwest strategy which was quite aggressive was the funding that they were actually using—how they were funding themselves to grow their asset book in that fashion. A lot of that funding was effectively coming from the parent, HBOS.

Mr RUDDOCK: I am really asking myself this question about Bankwest: if it was one of the four key banks, how would you analyse it? Because they are stand-alone your prudential requirements are that you assess them in terms of their capacity to survive crises even here in the Australian economy. But when you were looking at an overseas bank it seems that the parent bank that acts as a source of strength for the local operations has to be looked at in addition. Is that right? So you do not make the same critical evaluation you would of a domestic bank because you have a bank that can act as a source of strength.

Mr Grummitt : The first point to make—to re-emphasise Warren's point—is that the prudential standards apply to everyone equally. Then there is an overlay in terms of the way we actually supervise banks. It is true that for a local subsidiary of a global banking group—and very often a subsidiary which is a very small part of that global banking group—we actually do place some reliance on the level of support that is potentially available from that banking group, which in practice allows that foreign subsidiary—

Mr RUDDOCK: Some reliance, not a source of strength. Just some reliance.

Mr Grummitt : It is a combination. It is how you weight those—on the one hand it is stand-alone strength, and on the other hand it is the potential for support from the parent.

Mr RUDDOCK: When did you become aware that HBOS was a source of risk?

Mr Grummitt : I cannot give you the exact date, but it would have been as the crisis unfolded and it became clear that HBOS was—

Mr RUDDOCK: Did somebody else identify it or did you?

Mr Scott : There were discussions between APRA and the Bank of England with regard to HBOS. If you go to the Bank of England report on the collapse of HBOS—as Mr Grummitt says, these issues of some of the lessons learned on the collapse of HBOS—one of the points was an aggressive strategy and short-term lending. That certainly comes out quite clearly in the report. There always are discussions between APRA and the home regulator of subsidiary banks operating in Australia. As Mr Grummitt said in the opening statement, when it became clear that HBOS was in trouble and they were trying to sell Bankwest, there were any number of discussions, as you have heard from other testimony by people from the Commonwealth Bank, between APRA and the Bank of England. One of the lessons learned in this process is that the degree of our reliance on the ability of the home regulator to communicate to us the strength of the parent of an Australian subsidiary bank is certainly something that we have to look at a lot more closely going forward.

Mr RUDDOCK: As I understand it, and I am very ignorant of these matters—

Mr Scott : I have a feeling you know an awful lot!

Mr RUDDOCK: No, I am just trying to tease it out a bit. I want to understand the process. Did the Commonwealth Bank made a judgement that this would be a good arrangement for them to enter into, or were they under some pressure from bodies like yours, which had identified that there was a significant risk to our system as a result of what was occurring in the United Kingdom?

Mr Scott : I was not at APRA at the time of these events, but, having talked to people who were, there was no pressure by APRA for the Commonwealth Bank to acquire Bankwest. It was purely a commercial decision on their part.

Mr RUDDOCK: And there was no advice to the government from APRA that something should happen?

Mr Scott : I would not know of that, but not that I know of.

Senator O'NEILL: I have a few questions about Bankwest's Basel reporting, following up on Senator Ketter's questions. Was Bankwest given an exemption by APRA or any other body from compliance with APS 330?

Mr Grummitt : Not to my knowledge. We can take that on notice, but I have no knowledge of that, no.

Senator O'NEILL: If you could. Going forward, I will have some further questions on notice about periods of exemption and the timing of that. With regard to the evidence given today, I cannot see who is there. The man with the northern American accent—

CHAIR: That is Mr Scott.

Mr Scott : I can change my citizenship; I cannot change my accent!

Senator O'NEILL: I think it is a great inheritance. You said earlier in your evidence that the bank having identified a problem asset that they can see is of concern to you. Are you aware of or have you invested in any other processes with any other regulators to ensure that there is an independence to that capacity to see whether a problem asset might be managed back into good health?

Mr Brennan : I am not sure if it was my colleague Mr Scott who spoke to that—perhaps it was Mr Grummitt—but managing an asset back to health goes to perhaps the earlier points where we were discussing APRA's mandate, which is primarily about depositor protection. Our approach will be that we would expect a proactive risk management, appropriate provisioning and holding of capital. That is all in the context of requirements that APRA has of the ADI. How the ADI then responds with their customer is a matter for the ADI to negotiate with their customer. As long as there is proactive risk management and there are appropriate reserves, be it in the form of provisions or capital, they have satisfied APRA requirements. I am not sure if that answers your question directly, so I would be happy to hear a further question if that helps.

Senator O'NEILL: Thank you. That does go to some of the commentary that Senator Fawcett put around the nature of the contractual obligations. We had evidence from ASIC that indicated that they thought that the bar was so high that unconscionable conduct was actually impossible to prove, given the level of protections for banks under current contractual structures. Do you have a view on that?

Mr Brennan : Not directly, I am afraid. As I said, our central mandate is about depositor protection, so if there is appropriate risk management provisioning, be it in the form of financial accounting provisions or capital, most of our requirements have been met.

Senator O'NEILL: Can I indicate that I have some more detailed questions that I will put on notice, but I want to go back to the evidence of Dr McGovern this morning, who indicated to the committee that the market that you supervise and look after the prudential standards for is in fact an oligopoly, that there are few suppliers and that it is really not competitive. He referred to anti-trust and credible threats in his answer. Is APRA of the view that the market that they are supervising is actually an oligopoly?

Mr Scott : That would be somewhat outside of our mandate to have a necessary view on that. There are other regulators, as you mentioned, ACCC, who deal with competition. Competition is just one factor amongst stability and competitive neutrality that we look at in prudentially regulating the banking system. But whether the existing structure of the four major banks is an oligopoly, I do not think it would be appropriate, and it is not within our mandate, for APRA to have a view on that.

Senator O'NEILL: What actions, including monitoring and engagement with banks, is APRA currently undertaking to prevent failures like the 2008 Bankwest commercial loan book?

Mr Scott : Our entire operation, day after day, is to do just that. It is to make sure that we do not have a situation like that which affected Europe and the United States as badly as it did. We certainly cannot talk about actions that we are taking on investigations going forward, but our sole role is actually to financially supervise the banks so that such a disaster does not happen in Australia.

Senator O'NEILL: What actions are you currently taking, just to make that a bit more transparent to us? Could you reflect on the October 2015 Reserve Bank data on the commercial property quotas? Do you have any concerns about the quality of the loan books and lending practices of any banks at the present time, and which ones?

Mr Scott : We were just handed something from the RBA that you might be talking about. Perhaps we can take the question on notice.

Senator O'NEILL: That would be great. Do you have any concerns about the quality of any loan books and lending practices of any of the banks at the present time, and which ones?

Mr Scott : It would be difficult for us to actually respond to that question, considering the provisions of the APRA Act.

Senator O'NEILL: Can you explain why.

Mr Scott : It is a criminal offence if APRA releases protected information or protected documents about the situation of an individual entity.

Senator O'NEILL: Because of the market effect?

Mr Scott : It certainly would have that, amongst other things, yes.

Senator WILLIAMS: Mr Grummitt, you monitor the safety—if I can call it that—of the banks, seeing that they are doing the right thing. If a bank were doing crazy, reckless lending in a commercial loan book, would your organisation pick it up?

Mr Grummitt : We would hope that our supervision would pick that up. It is fair to say that within fairly broad bounds banks are free to pursue the strategy that they choose, and different banks have different strategies, different risk appetites. But at the extreme, yes, we would take action if we—

Senator WILLIAMS: Right, so you would pick it up, you would think. You would hope that you would pick it up.

Mr Grummitt : We would hope to—we are not going to pick up every individual loan, but if there was a strategic—

Senator WILLIAMS: No, but if you see a pattern.

Mr Grummitt : We would hope to pick that up.

Senator WILLIAMS: Clearly in the evidence this committee has received on the Commonwealth Bank, there was an enormous amount of reckless lending by Bankwest during 2006, 2007 and 2008. Did you pick anything up?

Mr Grummitt : I am not comfortable answering that question, I am sorry.

Senator WILLIAMS: You are not going to answer it?

Mr Grummitt : I do not know if I am able to comment specifically on—

Senator WILLIAMS: You just said that you would hope that you would pick up cases of reckless lending, through symptoms or signs.

Mr Grummitt : But specifically with respect to the situation at Bankwest, I was not the Bankwest supervisor at that particular time. I am not sure if we—

Senator WILLIAMS: Can you take that on notice?

Mr Grummitt : We can take it on notice.

Senator WILLIAMS: Can you check with the Bankwest supervisor at that time to see if there was a pattern of reckless lending, through, say, the period 2006, 2007 and 2008, of the Bankwest commercial loan book—okay?

Mr Grummitt : Yes.

CHAIR: Thank you for appearing today and for your evidence. You have been asked to take some things on notice. I ask that you provide those answers to the committee by 8 March. Thank you for being here.