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Economics Legislation Committee
Australian Prudential Regulation Authority

Australian Prudential Regulation Authority


CHAIR: Welcome. Good afternoon, Mr Byres and officers and members. Mr Byres, do you wish to make an opening statement?

Mr Byres : In the interests of time, I will just make a very short opening statement.

CHAIR: Absolutely; thank you. I would like to thank you very much for acquiescing to our request from yesterday to today and vice versa and fitting in with us. The committee very much appreciates that and we are very grateful.

Mr Byres : Thank you, Chair. We try to do our best. I will start, if I may, with a couple of comments on our efforts to reinforce sound standards in lending for housing. This is an effort that has consumed a great deal of our supervisory time over the past three months, but it is now starting to bear fruit. Given the current environment, Australian deposit-taking institutions, particularly the largest lenders, have acknowledged the need for collective action to ensure that Australian housing portfolios remain low risk and a key source of stability for the banking system as a whole. So, with our encouragement, we have seen the removal of some lending practices that were, to be frank, less than prudent and we have seen some scaling back in growth aspirations to more moderate levels. The effects of this are only now beginning to be observed and will take some time to fully flow through.

To that end, we will be watching very carefully over the remainder of the year to make sure that revised policies and plans are genuinely being put into effect and maintained by individual lenders. This work has often been described as macroprudential, but we see it very much as bread-and-butter supervision activity. As I have said previously, our success is not going to be judged by changes in house prices. They are not within our mandate, and in any event there are too many influences on house prices that are beyond our control. Our goal is simpler: that, regardless of the path of house prices or interest rates or economic activity, the loan books of Australian ADIs are built on a solid foundation from sound lending standards.

I would also like to quickly comment on private health insurance. As you know, the government recently introduced a number of bills into parliament to transfer responsibility for the prudential supervision of private health insurance from the Private Health Insurance Administration Council, PHIAC, to APRA. From our perspective, APRA and PHIAC staff have actively engaged for much of the past year to prepare for the transfer. And I am pleased to report that both agencies are ready to deliver a seamless and effective transfer of responsibilities on 1 July. We therefore regard it as quite important that this package of legislation is passed by parliament this month to ensure that the momentum and preparation for that change are not lost.

Finally, I would like to quickly note that this will be the last appearance before this committee by my colleague Ian Laughlin. Ian is reaching the end of his five-year term with APRA—the last two as deputy chair. During his time with us, we have benefitted greatly from his wisdom and extensive industry experience. I would like to take this opportunity to publicly acknowledge his significant contribution to APRA.

CHAIR: Hear, hear!

Mr Byres : My colleagues and I—and particularly Ian—would be very happy to take your questions.

CHAIR: Give him a send-off, you reckon! Thank you very much, Mr Byres, and we very much appreciate the work you are doing.

Senator WHISH-WILSON: In December 2014 APRA wrote to authorised deposit-taking institutions and outlined a number of measures, including increases in capital requirements from the banks. I want to go through a couple of benchmarks. ABS data shows that 40 per cent of all new home loans are interest only, which is at a record level. RBA figures—and we got this directly from the RBA earlier this week—are that investor home loans have grown by 10.4 per cent so far this year. And we have heard from bank insiders suggesting that ADIs are applying the seven per cent interest rate floor only to a borrower's new loan and not taking into consideration their existing debts. J.P. Morgan economist Stephen Walters said he believed that APRA would need to adopt a tougher approach to slow lending, including threatening banks with tougher capital rules, such as maximum loan-to-valuation ratios. You have been relying on suasion, I suppose, to this point since December 2014. Is it enough and are there other measures you can take to achieve some success in this area?

Mr Byres : I would start by saying we need to be careful about what we define as success. I said in my opening remarks that our measure of success is not house prices, and I think that is what a lot of people are focused on. Our measure of success is: are banks lending soundly with sensible practices? When we wrote to the banks and all deposit takers in Decembe,r we flagged a number of areas that we said we were going to pay particular attention to and, in a sense, one of two things would happen: either there would be a moderation in growth ambitions and some strengthening of lending standards, or there might be higher capital requirements—as you alluded to in your question. Thus far we have not had to apply higher capital requirements to any individual lender, because thus far they have been cooperative in terms of changing practices where we thought they were, as I said, less than prudent.

We are starting to see that in the media. You would no doubt have read reports about the banks strengthening their standards. These things are starting to take effect. In our letter we said we were watching very carefully to see where investor lending was growing, and we flagged a benchmark of 10 per cent. At the time we sent out our letter the growth of investor lending was about 10 per cent, but it was accelerating. It was heading towards 11, 12 and 15 per cent in terms of the trajectory it was on. It is still hovering around 10 per cent. We are arguing about the decimal point here—10.4, 10.3; in one month 10.4. So we have had some moderating impact and I suspect we will have some more moderating impact over the coming months as some of these tighter practices come into force. We have always said we would be prepared to do more if we need to do more.

Senator WHISH-WILSON: I am sorry, just quickly: any success on loan affordability tests?

Mr Byres : We did an exercise where we gave some hypothetical borrowers to a range of the largest banks and had a look at how they assessed serviceability. That highlighted that there were some banks who were applying an interest rate buffer, a margin only, to the new debt and not to the existing debt that a borrower might have. I said in a speech recently I could not see how that was sensible policy, given when interest rates rise they rise for all your debts. We have been talking to the banks concerned and they are making changes to their practices to adopt a more sensible approach.

Senator WHISH-WILSON: Would you say you are satisfied with the conduct of the banks in relation to higher risk mortgage loans?

Mr Byres : So far they have been responsive to the issues we have raised. Obviously we have to keep a watching brief on this. It is not the sort of thing you can just do once and then take your eyes off it because it is a very competitive market. That has been our concern. So far we are happy that our messages have been heard and actions are taking place. Those actions will strengthen lending policies and moderate a little the growth ambitions that banks have had.

Senator WHISH-WILSON: So how do you go about evaluating adherence to the seven per cent floor, for example, on the lending rate for mortgages? Do you do that internally? Do you rely on another whole-of-government approach or cooperation?

Mr Byres : First and foremost, obviously, we look for evidence of what the bank's policy is, because every bank has a set of policy documents that describe what their policies are.

Senator WHISH-WILSON: It might show if they are incorporating existing liability—

Mr Byres : That is right. Then periodically we have our teams of supervisors who would go out and they could look at individual files and see if that was actually being applied. Then ultimately—and this will be something we would consider a bit down the track—we can ask for the auditors to have a review of what has been happening, so a more detailed transaction level testing exercise. We have the armoury to make sure that it is not just a promise but it is actually in practice.

Senator WHISH-WILSON: Are you setting any internal benchmarks or goals on the kind of thing we are discussing today? You said you are reasonably comfortable with the banks having taken some action to date. At what point will this be revised to see whether we need stronger action?

Mr Byres : I do not have a fixed deadline. In a sense, it is constantly under review. We have a team of people who are focused on this issue and a large chunk of their daily work is spent looking at these issues. We now have a very good stocktake of what all the banks have said they are going to do in terms of the buffers they are going to apply, the serviceability tests that they apply, and the growth that they have in their business plans. Our job now, having got comfortable with that mix of policies and plans, is to monitor and make sure they are delivering on what they have said to us. If we observed that, for whatever reason, policies were not being followed or growth continued to accelerate and we were concerned about the risks that was posing, then obviously we would act. But at this point, as I sit here today, we think the banks have responded to our concerns.

Senator WHISH-WILSON: In terms of the overall investor credit growth and the figure that was reported, 10.4 per cent: is there anything that you can do to break that down by geographical area? It was pointed out to us the other day that, obviously, Sydney and parts of Melbourne are in higher-risk situations than Queensland, Tasmania or Perth. Is there anything that you can do to target that more, or is that sort of hopeless?

Mr Byres : Is your question: is it theoretically possible or practically possible to do that?

Senator WHISH-WILSON: Could a bank increase its risk weighting for a liability in a specific residential market?

Mr Byres : In a particular market? On the range of tools that we have available to us, that is possible. There is nothing that would preclude us from doing that. That is what has been done in New Zealand, for example, where they had concerns about house prices, particularly in Auckland. So they have a differential risk weight for Auckland versus the rest of New Zealand. But at this point we have not seen the need to go down that path.

Senator WHISH-WILSON: But that is one potential—

Mr Byres : It is there in our tool kit.

Senator WHISH-WILSON: Just quickly on capital requirements as something also relating to December 2014: are you comfortable with the level of exposure of banks to mortgages at the moment? I suppose that is across all categories, or any particular categories that you are uncomfortable with. And at what point does APRA think it might need to act further on capital requirements?

Mr Byres : We have said on a number of occasions that the balance sheet of the Australian banking system is very concentrated in mortgages, there is no escaping that. It is natural that it gets a high degree of focus from us because it is the sort of thing where we cannot afford to have anything go wrong, in that 60 per cent of the banking system's total loan portfolio is mortgages.

Within the total portfolio, the areas that we flagged in our December letter as warranting particular attention were: watching investors very carefully, as you have already noted; high LVR and high loan-to-income-type loans; and interest-only loans to owner-occupiers. They would be the ones that I would call out.

Senator WHISH-WILSON: I will have a shot at this question, anyway: have you provided any advice to government on other policy settings around mortgages and mortgage risks, such as capital gains tax concessions or negative gearing?

Mr Byres : No, we have not.

CHAIR: There you go, you got an answer!

Senator WHISH-WILSON: It was worth a try! Could you say whether you have been involved in any input for either the Department of Foreign Affairs and Trade or perhaps the Attorney-General's Department in relation to the Trade in Services Agreement or the Trans-Pacific Partnership Agreement?

Mr Byres : I would have to take that on notice because personally I have not, but I could not say definitively whether some part of APRA has been consulted. So let me take that on notice.

Senator WHISH-WILSON: And for the Trans-Pacific Partnership Agreement as well?

Mr Byres : Yes.

Senator McALLISTER: I just wanted to follow on a little from some of Senator Whish-Wilson's comments around housing, in particular this heightened scrutiny that you signalled in December. I assume that you rely heavily on the prudential practice guide around residential mortgage lending as a kind of overarching framework for that kind of review—would that be correct?

Mr Byres : That is an important part, yes.

Senator McALLISTER: I noticed that, at least in part, the guide emphasises the role of boards seeking explanation when they see unusual levels of growth in particular segments of their portfolio. Are you seeing the kind of response that you would expect from boards in the governance arrangements in the ADIs to these issues around investor lending growth?

Mr Byres : Generally, yes, but it is something that we have been turning up the dial on for a couple of years. The prudential practice guide was simply one additional step in focusing attention on this issue. I took up my role on 1 July last year, and when I arrived I was receiving letters that were responding to letters my predecessor had sent out to the chairmen of the ADIs, essentially seeking their assurances that they were paying attention to these issues—that they were focused on the quality of lending standards and the risks that were within the loan books. All of them provided the requested response. So I think they are very much on notice that they have a role. It has not been just a case of us publishing a prudential practice guide and, if they happen to notice on page whatever it is that there is a role for the board, they have responded. We have in fact written to them and said quite clearly: 'You have that responsibility.' They have acknowledged that in writing back to us. When we have our discussions with the boards, as we do as a matter of course—we meet periodically with the boards—in the current environment housing is inevitably a topic for discussion. So we are testing exactly what it is they are looking at, what their current view of their loan book is, what their current view of their lending standards is.

Senator McALLISTER: That is very encouraging. I know that you have put a very strong view publicly that you would prefer to pursue this behind closed doors, and I understand the arguments around that. I just wonder, given that these boards' fundamental obligation is to shareholders, whether there is not a competing argument around the rights of shareholders to know where the risks lie in the institutions they have invested in. I appreciate that it is a delicate balance. I do not think it is black and white. But I would appreciate your views or reflections on that balance between shareholder interests and, I guess, good communication between regulated communities and the regulator.

Mr Byres : Charles will probably want to jump in on this subject, but let me offer a couple of thoughts. We fully recognise there is a delicate balancing act here and that, in particular areas, there is a lot of value in transparency. It is not as though we discourage transparency. There are prudential standards that we have that actually require banks and other institutions to put things into the public domain that they would not otherwise choose to: information about their risk profile, what is in their loan book, the risk of the various categories within their loan book. So it is not as though we are seeking to stand in the way of transparency. But our job is actually to protect depositors, not to protect shareholders. Fundamentally, when it comes to banking, we exist to protect depositors. By and large, the tried and tested and the successful way that we have been able to do that is to operate, in many ways, behind the scenes; make sure issues are dealt with; and make sure that depositors or policyholders in insurance companies or super fund members in super funds do not have to actually think, 'Is my deposit safe? Is my money safe?'

There is a balancing act here. We require a lot of confidential information from organisations to be successful. If that were regularly in the public domain, it would seriously impede our capacity to get that information in the first place. We fully understand the trade-off but we think it is quite important that there is a capacity for us to operate behind the scenes, so to speak. Charles, do you want to add anything?

Mr Littrell : I have just a couple of expansions on that. First, to echo Wayne on the disclosure point, listed banks, certainly the large ones, already disclose several hundred pages of information. There is plenty of material on the public record. The responsibility of directors is to the corporation. In the case of banks, 95 per cent of the liabilities on their balance sheet is coming from creditors and five per cent from shareholders. The Banking Act is senior to the Corporations Act on this matter. Nothing we are doing is particularly impinging on shareholders in the sense of somehow oppressing them. We and ASIC discuss this issue from time to time, and we are scrupulous about ensuring that we do not somehow try it on the ASX listing rules or the Corporations Act or something in a way that would put a director in a conflict of interest. But the day-to-day ruck and maul of APRA's supervision requires us to be much more sceptical and proactive with these institutions than the rest of Australian society.

In the same way that watching sausages being made is not an appropriate public activity, prudential supervision in public would create more uncertainty than it would create confidence. The discussions and correspondence we have with institutions are intentionally focused upon their faults and what they need to do to fix them. Trying to conduct that in public would materially reduce the cooperation of institutions in letting us know their problems and materially reduce our ability to solve those problems. It is rather like saying to someone: 'Privacy versus disclosure is a balance.' That is true. But our role is very much about protection and not punishment, so the way we achieve protection is a very frank, private and hopefully complete exchange of views with institutions. All of our peers globally are in the same boat. We all view it as being much better to engage in that stream of communication in private, because it is literally impossible to discuss someone's faults in such great detail in a public forum.

Mr Laughlin : I think it is worth noting that the interests of depositors and shareholders are often quite strongly aligned. What is good for a depositor is not necessarily bad for the shareholders and vice versa. It is worth noting that, I think.

Senator McALLISTER: Indeed. You indicated a willingness to take additional steps or measures in the future. You have not ruled out a change in approach. I suppose it is possible that you might consider a change in approach if you found yourself with an institution that was unwilling to engage in the way that you describe.

Mr Littrell : In terms of my role in APRA, which includes stewardship of the policy infrastructure, we take care to build into that a series of levers and tools which strongly encourage institutions to cooperate with supervisors. At the end of the day, if we form a robust enough opinion that an institution needs to change its ways, they will either change their ways or leave the industry. In that context we have plenty of power. Having sat on both sides of the table, as a banker and a regulator, I can tell you that ultimately it is not an exchange of opinions. Our opinion ultimately is the one that counts. Having said that, we deal with an industry that is generally honest, competent and cooperative. If we come along and express an informed view that something needs to be improved, normally we get cooperation because it is a good idea, not because we deployed our powers.

Senator WHISH-WILSON: Would you agree that that was the situation in the US leading into the GFC? You are perhaps Canadian or American? I do not want to insult you either way! I cannot tell from here! I cannot tell from the accent. I do always get it wrong. In hindsight there seems to be plenty of concern around regulators.

Mr Littrell : In strict point of fact I am Australian. Though, unlike most Australians, I was born in Alabama. If you look back, and my colleagues might have views on this, the state of Australian banking in 2005, when terrible pressures were building up around the North Atlantic, was that APRA was more proactive as a regulator. But industry was more competent and cooperative and sensible than what we were seeing around the North Atlantic. That was not uniquely Australian. You could say the same thing of New Zealand and most of Asia and most of Latin America. There was a very different regulatory approach, but there was also a very different cultural and risk management approach from the regulated institutions. In this particular go-round, we had the better end of the stick.

Senator McALLISTER: Can I mention something related but more specific, which is that this morning with ASIC we were discussing the use of a Henderson poverty line in assessing loan serviceability. They indicated that this was in use. They have obviously been involved in enforcement action with one of the institutions in Queensland from a responsible-lending perspective. I am wondering if you are seeing this practice present as a problem in your supervisory activities.

Mr Byres : It is certainly an issue that we frown upon. We recently did an exercise where we used some hypothetical borrowers, as I said, to test how banks would assess serviceability by customers. I gave a speech recently on this subject. We did flag, through that, that we were not particularly pleased to see that there were a number of banks in that exercise who had decided to assess the borrower's living expenses using a lower amount than the borrower had themselves said they needed to live on. Inevitably, these things tend to be tied because they use a poverty index or some variant of a poverty index rather than the borrower's own declared living expenses. In those particular cases, we are obviously expecting to see those practices change.

Senator McALLISTER: Was that widespread in the review?

Mr Byres : No, it was certainly not widespread; it was a minority. I cannot remember the exact number, but it was more than one or two.

Senator McALLISTER: From recollection—and I do not have the documentation in front of me—there was quite a large variation in that with your hypothetical borrower. What specific actions have you recommended to the industry to address that spread?

Mr Byres : It is very important to say up front that the spread itself is not a concern, because some banks or some lenders might naturally choose to be more conservative than others. The fact that there is a spread, a diversity of practices, a diversity of views, is actually part of a healthy competitive environment. What we tried to do was—

Senator McALLISTER: From the prudential perspective perhaps.

Mr Byres : And also from the community perspective that there are a range of different lenders out there. If you apply for a loan, not everyone is using exactly the same model to assess you. Someone might knock you back, but there is a prospect that someone else might view you through a different lens and be willing to lend to you. So I think the diversity of views is good for the community, and it is part of a normal competitive environment.

Having said that, there were these issues where we looked at specific practices and—to your point—said: 'Are you really using a poverty index rather than the borrower's declared income? Are you only applying the interest rate buffer to part of the debt and not all of the debt?' We tried to pick on the specific issues where we thought the practice was really just not prudent and asked banks to reassess whether that made sensible lending, whether that was part of a sensible lending program. In the vast majority of cases, people said, 'Yes, actually that's probably not the way we should be doing things,' so there has been this tightening up of issues across the industry. But it is not the case that we have simply said, 'Here's the most conservative bank, and isn't that good and conservative, so everyone else has to move there.' It is rather that there are a range of views, and, where we have seen some at the clearly less than prudent end of the spectrum, we have tried to just chop that end of the practice off.

Senator McALLISTER: On to a different question—

Senator WHISH-WILSON: Could I ask a follow-up question on the hypothetical borrower?

Senator McALLISTER: Yes, please do.

Senator WHISH-WILSON: In relation to the hypothetical borrower, you mentioned that you do not focus on housing prices, but has APRA run any scenarios on what might happen if, for example, we were to have some sort of shock or the bubble were to burst, for example, and real estate prices were to fall 20 or 30 per cent? I am just interested in what would happen with negative equity and potential foreclosures—the kind of instability that would cause.

Mr Byres : We did a stress test of the ADI sector last year about the top dozen—I do not know, Charles, if you know the exact number, but roughly the top dozen—banks. It was a broad scenario. There were two scenarios actually, but both of them included house price falls. It varied from state to state but across Australia in the order of 30 or 35 or, I think, in the extreme case, 40 per cent. There is a speech that I did last year in November which has all the gory details in it. The conclusion from that speech was that it depends if you are 'glass half full' or 'glass half empty'. The glass-half-full perspective was that banks were actually able to withstand that shock. The credit losses they incurred were sizeable, but they had the capital to meet them and they did not breach absolute minimum regulatory requirements. The glass-half-empty aspect was that, having got to that position, the recovery trajectory out of that looked very difficult, and it would not be a scenario that you really felt comfortable being in.

Senator WHISH-WILSON: I was particularly interested that the Reserve Bank were saying this week that they are seeing a large number of new mortgages taking advantage of record low interest rates, and that was, in their opinion, what was fuelling a bubble in housing prices, particularly in Sydney. I am just interested in the situation—

ACTING CHAIR ( Senator Bushby ): I think you are asking a follow-on question.

Senator WHISH-WILSON: On the same subject.

ACTING CHAIR: Senator McAllister still has the call.

Senator WHISH-WILSON: Okay, I will put it on notice. Do you mind if I finish it?

Senator McALLISTER: Go on, Senator. Please finish your question.

Senator WHISH-WILSON: In a situation where housing prices were to fall 30 or 40 per cent, would we have a situation with negative equity for borrowers, foreclosures and the economic impacts that would be associated with that?

Mr Byres : Clearly, if you have borrowers now who are borrowing, for example, at 90 per cent LVR, so they have a 10 per cent deposit, and then next week house prices fall 30 per cent, then—

Senator WHISH-WILSON: Or over a couple of months, yes.

Mr Byres : Yes. Our scenario had them falling over a period of time. But, to simply answer your question, there would inevitably be borrowers who have negative equity in that sort of scenario. That is the source of the credit losses that we were trying to identify for the banks, because, to the extent that that scenario, as we painted it, was happening alongside of a sharp rise in unemployment, and various other adverse economic events were happening, we fully expected that, in this adverse scenario, there would be a very large rise in defaults on the mortgage books and, for that matter, other lending that banks do. Our job was to try and work out: what is the extent of those losses that would happen? What is the extent to which banks would recover that from borrowers through realising security, and to what extent would it actually be bank shareholder money that had to wear the loss?

Senator WHISH-WILSON: That is available to us, is it? We can access that?

Mr Byres : The speech was in November last year. It is certainly on our website. We can provide you with a copy.

Senator McALLISTER: Chair, I only have two more questions, so I should be able to finish up shortly. This is still on housing. On Monday, the Treasury secretary reflected on his concerns that a housing bubble in Sydney and Melbourne was impacting on people seeking to enter the market for the purposes of their own housing rather than for investment, and I am conscious of your repeated and clear indicators that this is not your mandate—that your measure of success is a secure banking system. You sit in the Council of Financial Regulators. It is chaired by the Reserve Bank. The Reserve Bank is responsible for monetary policy, you are responsible for the institutions. I am wondering if there is any discussion in that forum though about housing affordability. Because, even after the last three days of hearings where I have pursued these questions—as has Senator Whish-Wilson—it is actually unclear to me which institution is responsible for housing affordability.

Mr Byres : Well, I can say housing affordability is not us. I would not want to speak for the other agencies around the council table—but I would say it is not really the Reserve Bank, if you look at their mandate, and it is not ASIC, if you look at their mandate. That is not to pass the buck, it is simply to state the facts. We have a responsibility for the stability of individual institutions and the financial system. The Reserve Bank has a responsibility also for financial stability and then the broader economic environment. ASIC has its responsibilities relating to consumer protection. But we are all financial sector agencies looking at financial institutions and financial markets. Charles was also at the council with me, so he may have a view, but I would say the only one at the table that has a broad enough mandate is Treasury.

Senator McALLISTER: Thank you. My last question relates to something entirely different, which is the other matter that my colleague Senator Dastyari has pursued here over the last few days of the apparent stickiness of interest rates for credit cards, The RBA, ASIC and, indeed, the Treasury secretary have indicated that this is an issue that warrants further investigation. It has been expressed in different ways by each of those entities. I wonder if that is something that you agree with.

Mr Byres : I would not want to disagree with that—

Senator McALLISTER: Indeed!

Mr Byres : As I said at the start, our mandate is on the stability of the institution and protecting depositors. The issue that you have raised is more, I think, a competition and a consumer protection issue. But I understand the point fully: that the margins on credit card business look very high, certainly compared to any other form of credit. And certainly I cannot sit here today and say I have a good explanation of why that is. So to that extent, informing us all about that is probably a useful piece of work.

Senator KETTER: Mr Byres, earlier today I was asking a series of questions of ASIC in respect of a joint investigation which your two agencies are conducting concerning this concept of bank bundling—I think that is the media term for it—that is, superannuation funds operated by banks allegedly seeking to induce employers to offer inducements in order to get people into the default status of a superannuation fund, operated by a bank. I am just seeking an update on that. Mrs Rowell gave us a bit of an update at a recent committee hearing, and I understand that in March, Mrs Rowell, you gave an update to the House Economics Committee. I am just seeking your perspective on the investigation and where it is up to.

Mrs Rowell : We have been liaising closely with ASIC on this, and coordinating our activities. From an APRA perspective, we sought information from the banks that were covered by the material which was provided to us to find out what their practices were in this area. We had discussions with them about those practices and how they were managing the way they promoted and sold the default superannuation products. There was nothing coming out of that that suggested any clear breaches or issues, although there were some weaknesses in practices that we identified and requested be addressed further. So from our perspective, there is not much more that we can do in relation to those specific issues that were raised with the institutions.

However, what we have been doing and will continue to follow up on is ensuring that the boards of superannuation funds, the trustees, are exercising more active oversight and having more awareness of the selling and promotion practices that are used by their organisations—particularly when you are talking about trustees that are within a group or a banking organisation, but it is more broadly as well. Our expectation of trustees is that they understand how the superannuation default product is being marketed and that appropriate controls are in place to ensure that there are not breaches.

The other clear outcome from the investigation is that the particular legislative provision is weak in terms of whether or not you can identify a breach and then, if so, how you respond to that from both an ASIC and an APRA perspective. So that is something that we are pursuing.

Senator KETTER: Yes. Have you got a copy of section 68A in front of you at the moment?

Mrs Rowell : No, I have not.

Senator KETTER: Could you provide a little bit more detail as to what particularly, in relation to that section, is of concern to you.

Mrs Rowell : I think the wording of what the conduct would be that might breach it is fairly difficult. There has to be, firstly, proof of the existence of an offer or an agreement. In the way these products are marketed and sold, having definitive proof of a breach can be problematic. Similarly, the onus is on the consumer to identify a loss that has resulted from the activity, and there are question marks about how a consumer or a fund member would be in a position and when they could make that determination as to whether there was a breach or not, and hence raise that and get it dealt with. So I think there is some scope to perhaps improve that provision to make it more effective.

Senator KETTER: I think that sounds like a good idea. What about in terms of the exemption for certain types of services in section 68A(2), which makes reference to a regulation where certain products are exempted from being caught by this section, such as the supply of a business loan?

Mrs Rowell : That is not an issue that we have specifically focused on, but it is something that could be looked at as part of any review.

Senator KETTER: In questioning earlier today of ASIC, they indicated that they were seeking some further information. They have issued notices to a number of the banks, and they are seeking further information, but from your perspective it sounds like you are not going to be actively involved in this investigation into the future.

Mrs Rowell : No. Our focus on this has been around the prudent management, if you like, of the sales practices at the regulated institutions from a prudential perspective. ASIC is looking much more specifically at the nature of the conduct. This is a provision that ASIC has carriage of in an administrative sense, so we will continue to stay in the loop with what ASIC is doing, and we will not actually finalise our work in this space or close off our consideration of this issue until we see the outcome of the further work that ASIC does.

Senator KETTER: ASIC gave some feedback earlier today that they sought some information from APRA and, to paraphrase what Mr Tanzer said, there was a lack of granularity in the information that you collect from the superannuation funds. So could you just elaborate on that and whether there is a need for perhaps a look at the level of information that you obtain.

Mrs Rowell : I think the information that we obtained from the organisations as part of our work was to look at what their policies, practices and procedures were, rather than looking at individual cases of default funds moving. So we did not have that information. ASIC were issuing an order to request that specific information, and so there seemed little point in both of us requesting the same information from the institutions.

Senator KETTER: So, in effect, from here on in, ASIC is the lead agency that will be carrying this issue further?

Mrs Rowell : That is correct.

Senator KETTER: Thank you.

ACTING CHAIR: You may be aware of an article in The Australian Financial Review which reports that Deputy Governor Phil Lowe issued an alert to holders of less liquid assets to be aware of the liquidity trap. That was in the context of asset funds such as property trusts. What he means by the liquidity trap is, clearly, that if you hold too high a percentage of your funds under management in illiquid assets, you might find it difficult to meet the demand in periods of high demand for withdrawals. Obviously, those same risks that deputy governor Lowe is warning about would apply to most if not all of the entities that you overlook. Clearly, there are very complex and detailed liquidity rules that apply to the banks. I think there are similar rules that govern insurance in the same context. On superannuation, I am curious to know what you have to say about the degree to which you look at the liquidity of the assets under management in the large superannuation funds that you look after?

Mrs Rowell : Under our prudential standard, there is a requirement for trustees to have in place liquidity management strategies and plans. That is part of their overall investment strategy. That is something that we look at as part of our regular supervision. In fact, in determining their investment strategy, they need to consider the liquidity of the different types of assets and the need that they will have to be able to realise those assets in an orderly manner as and when needed, and factor that into the way they construct their asset allocation, their investment strategy and manage investments on an ongoing basis. It is an area that we have identified for our next thematic review, which is underway at the moment which is actually getting a deeper understanding of exactly what practices are being adopted by funds and any areas that might need improvement in terms of how super funds are managing those.

ACTING CHAIR: They prepare a plan themselves—

Mrs Rowell : Yes.

ACTING CHAIR: which presumably includes an assessment of the liquidity of the funds that they have under management and how they would then deal with things in terms of times of stress and having to payout from those funds?

Mrs Rowell : That is right.

ACTING CHAIR: That would be self-prepared. Then you do that and you look at that to make sure that APRA is satisfied that that is a reasonable approach. But there are no is set requirements, as there are in banks and others, for percentages or anything like that?

Mrs Rowell : No.

ACTING CHAIR: You say you are looking at it. Is there a reason that you are looking at it? Clearly, during the GFC there were two super funds that merged, as I understand it, because one was overweighting illiquid and unlisted properties and infrastructure assets, and was forced to merge into a larger, more liquid fund. Is that occurrence part of why you are looking at this issue as you go forward?

Mrs Rowell : No, it is not. We have implemented a new prudential framework, which imposes heightened requirements in a number of areas. We are progressively having a deep-dive look at how the industry is implementing those new and heightened requirements. We started with conflicts, management and insurance. We are now moving to investment governance with a particular focus on liquidity. Through the Financial System Inquiry, FSI, there were a number of issues raised around the nature of superannuation investment: should there be more investment in infrastructure? Why was this not occurring? Was it due to liquidity constraints and other issues? Our view from our engagement with industry and other commentators around this is that there is probably some lack of clarity both about our expectations and about what the funds should be doing and how they can best manage their liquidity, and make sure that they are able to meet their cash flow needs on an ongoing basis. There are also the stress testing practices in the superannuation industry—their approach to dealing with substantial falls in a short time or freezing of assets and the like. That is not as well developed, and so our view is that if we deal with it in the review we will identify some good practices, some areas for improvement, and we can feed that back and improve industry standards across the board.

ACTING CHAIR: That sounds very positive. You mentioned heightened expectations. Are there heightened expectations in respect of liquidity in terms of what they demonstrate?

Mrs Rowell : Not in terms of the quantum—it is more about their approach. Heightened expectations in terms of the degree of focus it is given, the clarity around what their strategy is to manage it, the way they would tackle their stress testing, their ability to monitor inflows and outflows over time so that they know when they might need to realise assets or when there are changes occurring in their demographic profile or other factors that might mean they might need to think about changing their investment strategy.

ACTING CHAIR: I take it from what you have said that you do not keep any assessment of the weightings of the funds under management that you oversee. Is there any measure you record to say, 'These funds are more illiquid in terms of what they are holding and that is a concern; these ones are less so that is less of a concern'?

Mrs Rowell : That is something we would look at because we do obviously monitor asset allocation and investment strategies. It is not necessarily the case that having a high weighting of illiquid assets is a concern, unless it becomes a very significant portion of the asset allocation.

ACTING CHAIR: You have to overlap things like the demographic nature of the members, predicted time lines and so forth.

Mrs Rowell : Indeed. As part of our normal supervisory monitoring we would get reporting out of our data collection that would tell supervisors what changes were happening in terms of asset allocations and proportions in different asset classes and whether that flagged anything that warranted further investigation.

ACTING CHAIR: You have talked about stress testing before as well. Obviously, on the whole, those plans that they put forward to you would deal with the normal events. Do they also deal with extraordinary events?

Mrs Rowell : That is exactly what stress testing is meant to do.

ACTING CHAIR: Yes, that is why I raised the stress testing. The plans that they would put in normally would have demographic things, things that you can plan for and expect, but the extraordinary events, the external shocks that might impact on that, that is your stress testing and that is part of what they are required to do.

Mrs Rowell : That is correct.

ACTING CHAIR: Have you ever had to send any of those funds back and say 'Do it again or change your liquidity mix because we have concerns'?

Mrs Rowell : It is hard to be specific about that. Certainly as part of our ongoing review of investment management practices there would often be findings around areas for improvement and where they needed to improve their approach.

ACTING CHAIR: Do you require funds to have daily unit pricing policies so that you can ensure that members who stay in funds that face asset devaluations are not disadvantaged by being left in funds with substantial write-downs?

Mrs Rowell : We do not have requirements for daily unit pricing.

ACTING CHAIR: I have asked about this, but not for a number of years.

Mrs Rowell : There is a joint APRA-ASIC better practice guide, which talks about what better practice in unit pricing is. Our requirements are more about having appropriate unit pricing policies and understanding the implications of those policies. The vast majority of the industry has moved to daily unit pricing, but there are still some participants in the industry that are on less than daily unit pricing.

ACTING CHAIR: Is any particular sector retaining a resistance to daily unit pricing?

Mrs Rowell : Not that I am aware of.

ACTING CHAIR: I move on to another subject, but it is still related to superannuation—super fund governance. I have been reading The Australian Financial Review a lot lately. On 1 June I read a story about Mercer, which I believe is considered to be one of the world's latest leading retirement consultants, releasing a report that was implicitly critical of the Australian government regarding the level of independence of boards of super funds. Are you aware of that article?

Mrs Rowell : I am.

ACTING CHAIR: And are you aware of the report by Mercer?

Mrs Rowell : I am aware of the report. I have not read the report; I have only read the article.

ACTING CHAIR: Is it correct that APRA devotes a significant proportion of its resources to ensuring that super fund boards make an effort to appoint some independent directors on their boards? If not, what proportion of your time managing super would you devote to that?

Mrs Rowell : Given the current policy and legislative position, which does not require independent directors on the majority of boards, it is not something that we would focus on.

ACTING CHAIR: Is it something that you encourage?

Mrs Rowell : Our view is that having independent directors is better practice.

ACTING CHAIR: But there is no formal process for trying to encourage boards to improve the level of independence on their boards?

Mrs Rowell : There is no formal process.

ACTING CHAIR: Why do you think it is a better practice?

Mrs Rowell : The inclusion of independent directors typically brings a broader range of skills and capabilities. It provides for renewal; it tends to strengthen governance practices; it brings in new ideas. It enhances decision making and improves the quality of board discussions and decision making generally. That is the view we see in other industries, and that is the view that we would hold. Certainly, when we look at governance practices across the superannuation industry, there are some better practice boards that have moved to having at least a reasonable proportion of independent directors.

ACTING CHAIR: What degree of success are you having in your informal encouraging of super fund boards to adopt the higher level of independence?

Mrs Rowell : I think the industry generally is responding to a heightened governance expectations, given the important role that it plays. There are a number of funds that are moving voluntarily to implement independent directors at some level, without any nudging needed from us. There are other cases where we are suggesting that it would be worth considering.

ACTING CHAIR: It appears to me that the industry super funds are a bit slow in that regard. Would that be a fair characterisation across the board? Obviously there might be individual exceptions, but would the industry funds be slower to adopt a higher degree of independence on their boards than, say, the retail funds?

Mrs Rowell : That has been the practice although, perhaps in substantial part, that is because the Financial Services Council, which is the industry body which governs many of the retail funds, has a code of practice which requires a majority of independent directors. So the members of the Financial Services Council have moved to meet that code of practice.

ACTING CHAIR: No doubt APRA would support that, given what you said about it being a better practice.

Mrs Rowell : Yes.

ACTING CHAIR: But the industry super fund body—ISN—does not have the same code of practice.

Mrs Rowell : No.

ACTING CHAIR: Does APRA have data on board turnover, composition, male or female, independent versus non-independent, by segment, which you record? Do you keep that data?

Mrs Rowell : We have data on board composition by segment.

Mr Littrell : We do have gender. We can derive length of service with some difficulty. At this point the independence question has not yet been defined statutorily.

ACTING CHAIR: So you do not have that ability to—

Mr Littrell : We have the identity of the directors, and at need we could go through and do a manual extract, but it is not something that is routinely collected.

ACTING CHAIR: Without asking you to do that, or the length of service, which sounds like it would be an unreasonable request as well, are you able to provide to the committee details of what you do have on the breakdown of board memberships?

Mr Littrell : We will take that on notice.

Senator XENOPHON: I want to traverse three distinct areas. Further to Senator Bushby's line of questioning, you may be aware of recent media reports, including a Sydney Morning Herald report yesterday by Gareth Hutchens and Matthew Knott. 'Reno rumble: Abbott bursts buyers' bubble'—very tabloidy for the Sydney Morning Herald, I thought. But is there an issue? The housing market in Sydney seems relatively overheated, or, to put it in neutral terms, the price rises in the Sydney market are much higher than in the rest of the country. For instance, the Adelaide and Perth markets are relatively flat. Is it within APRA's role to look at a specific approach for specific housing markets, in terms of loan-to-valuation ratios being different from one market to another, so as to have a more nuanced or finessed approach to dealing with housing bubble issues? I think the problem with the New Zealand approach—the Kiwis changed the loan-to-valuation ratios for the whole country—is that, if you did something like that here, it would kill off the Adelaide and Perth markets.

Mr Byres : There are couple of things in response to that. You may have missed my earlier response. The New Zealanders have more recently introduced some differential policies. So they do have some policies for Auckland as distinct from the rest of New Zealand—

Senator XENOPHON: Okay. Sorry; I missed that.

Mr Byres : No, no. It is a relatively recent step. We have not taken that sort of step yet; as I said, we have not ruled it out either. But we have not seen fit to go down that path. To the extent that the more aggressive lending practices have been occurring in the more competitive markets, then, to the extent that we are modifying those practices or softening some of those practices, that will in fact impact the hotter markets and then—

Senator XENOPHON: Look—

Mr Byres : Sorry, just to quickly finish—

Senator XENOPHON: It is just that the Chair is back and he is quite ruthless with times!

CHAIR: I am very ruthless!

Mr Byres : Okay. In the sense of how we have looked at risk within individual banks, if you take, for example, the stress testing that we do, we apply different stressors by state. So, in your example, house price volatility in Sydney and Melbourne was much greater than in Adelaide and Hobart.

Senator XENOPHON: But is it within your purview as APRA either alone or in conjunction with other authorities—I am looking at APRA's powers under the APRA Act in section 11, for instance, and in relationships with other agencies—to actually say, 'We think that for this particular housing market there ought to be a differential approach, as there has been in New Zealand recently to do with housing loans,' for instance?

Mr Byres : There is nothing in our powers that would preclude us from having a state based measure.

Senator XENOPHON: Right. Without going into any specific detail, is that something that APRA has considered of late?

Mr Byres : Not of late.

Senator XENOPHON: Well, perhaps later!

Mr Byres : The short answer is it is not something we have seen fit to contemplate up to this point; but, as I said earlier, nor would I rule it out as something that has to be employed in the future.

Senator XENOPHON: Okay. You are not ruling it in, you are not ruling it out, but it is within the purview of your powers. That is a short summary of it.

Mr Byres : Correct.

Senator XENOPHON: Thank you. I go to a second, broader issue. You were good enough to sit down and discuss this with me. I do not want to go into to much detail. If an individual customer has a dispute with a bank, whether or not it ends up in the courts, and it relates to arguably ethical conduct of a bank—and that is obviously a matter for the ACCC or, within the courts, for specific contract litigation—does APRA have a role there if it might point to systemic governance issues in the bank? For instance, it is not providing interest-rate statements to customers and it is behaving in a way that most people would objectively say is pretty outrageous. Do you have an ability—I am trying to keep this in general terms—not so much to look at individual cases but to say there is something wrong with this particular bank's record-keeping or the way that they provide information to customers?

Mr Byres : That is exactly the way that we deal with customer complaints, because we are not ourselves a consumer protection agency or a dispute resolution agency. We do, nonetheless, get complaints from members of the public. Depending on the nature of those complaints, there are bodies better placed to handle them. For retail consumers, there is the Financial Ombudsman Service and there are various other measures. For commercial customers, it tends to be something that has to be pursued through the courts.

We do not, though, just pass on those sorts of complaints to other organisations. They are directed to our supervisory teams who then use them as a little bit of intelligence to see whether—going to your point—there is something systemic here and that this might be an example of a broader problem in governance or internal controls or in risk management. Obviously, we are very alert and very concerned if that is the case. If we use that as a trigger to look into an issue and we find there was a problem that was more widespread then obviously we would seek to have the issues rectified. But that is rectified in the sense of asking the bank to take corrective action to improve governance, fix systems, improve risk management. It is not to the point of saying we are arbitrating on restitution for the customer.

Senator XENOPHON: I understand that. It may be that for the particular entity that I spoke to you about that there may be some other complaints coming forward. Can I go finally, with the indulgence of the chair, to issues of the Arab Bank? On 22 September 2014 the US District Court in Brooklyn found that the Arab Bank's parent company, Arab Bank plc, had breached the US Antiterrorism Act 1990 by providing material support to Hamas through knowingly maintaining accounts for Hamas operatives and financing millions of dollars in payments for families of suicide bombers. An appeal by the Arab Bank against the verdict was dismissed by an appellate court in the US in April 2015. Is it your understanding, Mr Byres, that the Australian-based Arab Bank is a subsidiary of the parent company that has been the subject of the US court proceedings?

Mr Byres : Yes, it is a subsidiary.

Senator XENOPHON: Can you advise when and how APRA became aware of this matter? Was it through media reports or was there some other conduit in information?

Mr Byres : I would have to take that specific question on notice. Clearly, we were aware of it. Whether we found out through Arab Bank informing us, whether we found out through other regulators or whether we found out through other means I am not 100 per cent certain, but I will come back to you on that.

Senator XENOPHON: What investigations were undertaken by APRA in respect of the findings of the US District Court in Brooklyn? For instance, was there an audit? Where there investigations in respect of being assured that the Arab Bank in Australia was not in any way linked or involved with the matters that were the subject of the US District finding in Brooklyn on 22 September 2014?

Mr Byres : I will respond to that by saying that where we had any allegation against a bank for money laundering, terrorist financing or other activities—

Senator XENOPHON: This is not an allegation; this is a finding by the US District Court in Brooklyn about the parent company. We have got a subsidiary of the Arab Bank here in Australia. Did APRA undertake any specific investigations as a result of that quite damning finding of the US District Court in Brooklyn about the parent company, Arab Bank PLC, funding terrorist organisations?

Mr Byres : We did obviously look at that court finding and consider what that might mean for the local organisation. To come back to the point I was making, in Australia the primary agency for the investigation of those sorts of investigations is AUSTRAC. AUSTRAC is the agency that has the financial intelligence unit that is tracking payments—where they are going and any suspicious payments that might be made. In the normal course of events, there are arrangements that allow for information to be shared by AUSTRAC to APRA and APRA to AUSTRAC.

Senator XENOPHON: Because of time constraints, if we look at section 10A—

Mr Byres : Which act?

Senator XENOPHON: The APRA Act: 'Cooperation with other agencies'. It refers to the desirability of APRA cooperating with other financial sector supervising agencies. As a result of those damning findings by the US District Court in Brooklyn, upheld on appeal less than two months ago, can you tell us at what point did APRA investigate this matter, firstly?

Secondly, did it liaise with AUSTRAC given that here we have a subsidiary of a parent company that has been found guilty under the US Antiterrorism Act of offences?

Mr Byres : The simple answer to your question is yes, we have looked at the issue, and yes, we have liaised. As to the specifics—

Senator XENOPHON: Liaised with whom?

Mr Byres : AUSTRAC.

Senator XENOPHON: When was that liaison. Could you take that on notice?

Mr Byres : As to the specific dates I would have to take that on notice and give you information.

CHAIR: Good to go?

Senator XENOPHON: Not quite; you are not shutting me down, are you?

CHAIR: I am not shutting you down. I am just saying that you are on your seventh last question.

Senator XENOPHON: I think—

CHAIR: Nearly; the fifth—I have not been counting.

Senator XENOPHON: Can I just finish off? These relate to terrorist activities.

CHAIR: Absolutely, it is an important issue and I am not cutting you off.

Senator XENOPHON: I know it is a very important issue for the government.

CHAIR: It is an important issue.

Senator XENOPHON: I am trying to establish the thoroughness on the part of APRA, along with other agencies that you have a statutory right to cooperate with—indeed an obligation—as to how closely this was investigated. Can you provide, on notice, what investigations took place? For instance, was there an audit? Did AUSTRAC undertake an investigation of the Arab Bank's activities here in Australia to ensure that moneys from the Arab Bank here in Australia—any profits, any funds—did not end up in the hands of terrorist organisations?

Mr Byres : Just to be clear: we can tell you what we did; I cannot tell you what AUSTRAC did. You will need to ask AUSTRAC any questions that you might have.

Senator XENOPHON: I am happy for you to take that on notice.

Mr Byres : I will take that on notice. I will explain what we did, but I cannot answer on behalf AUSTRAC.

Senator XENOPHON: Thank you very much.

Senator WILLIAMS: I note that in a speech on 28 May you took aim at the culture within financial firms. You say:

For an industry that is ultimately founded on trust something serious is amiss, and strong and ethical leadership within financial firms is needed to set this right. Much has to do with the incentives that individuals face and how they signal what an organisation truly values and what it does not.

Are you saying the commission structure for advisers is at the root of all the evil we have seen?

Mr Byres : I am not sure that they are the words that I would use. First of all, I was speaking at an international forum in an international context. The point I was making was that when you look at the range of issues that have emerged around the world—be it LIBOR, be it in the FX markets, be it some of the things that are closer to home in terms of miss-selling—what is it that drives people to do things that we might think are inappropriate? My suggestion in that speech was to say, by and large, it is the personal incentives that are put in front of them. For all the lofty statements that people might make about culture, individuals respond to the incentives that they have in front of them.

Senator WILLIAMS: So if they have incentives that are good for their pocket they will push that product, push that advice or whatever?

Mr Byres : That is what the incentive regime is designed to achieve. It is designed to encourage people to behave in certain ways.

Senator WILLIAMS: Mind you, there is nothing wrong with a percentage when it comes to productivity, is there? I was an old shearer—the more you shore the more you got paid; that was the incentive.

Mr Byres : There you go. There is your commission structure.

Senator WILLIAMS: Exactly. I want to touch on Trio Capital. Are there any fraud investigations underway into anyone who was associated with the collapse of the Trio Capital Group? Would anyone know?

Mrs Rowell : APRA is not undertaking any investigations.

Senator WILLIAMS: Okay. I will just see if this one is possible. When ACT Super, McGrathNicol, end their receivership and associated investigations, who will all the paperwork be lodged with and will it be available for public scrutiny? I suppose that will go to ASIC, will it?

Mrs Rowell : What paperwork are you talking about, sorry?

Senator WILLIAMS: When ACT Super, McGrathNicol, end their receiverships in relation to Trio.

Mr Byres : Are you saying who keeps all the records of their work?

Mrs Rowell : We have some records. ASIC has some records. Whether we would keep specific—I would need to take that one on notice.

Senator WILLIAMS: Yes, no problem. Just one other thing, Mr Byres: for years I have stood up for little debenture-issuing companies. They have secured notes. They are companies that are not issuing debentures for their own commercial construction et cetera. They lend in a different area to some of the financial institutions. They take land, houses and property—real assets. Is it much of a problem for them to became an ADI under APRA? If, say, five or six companies want to group together, they might only have books of $10 million or $15 million each. The problem we had during and after the GFC, when the previous government guaranteed investments of $1 million in ADIs but not in these non-ADI companies, was that of course that led to a drain of funds. In New Zealand they covered both. My question is: is it difficult for these smaller financial institutions or companies to become ADIs registered under APRA instead of being under ASIC?

Mr Byres : Charles is probably the best person to answer this.

Mr Littrell : There are two or three aspects to this. One is that during and after the GFC we responded to a number of these institutions saying they wanted to get access to the guarantee by saying, 'Well, you're perfectly able to apply for an ADI licence.' In the end, no-one carried through on that.

Senator WILLIAMS: Why? Was it because it was expensive? Was it slow? There must have been some reason. If I were running an independent financial institution and I could get a government guarantee for the people who invested with me up to $1 million by being with you, I would do it overnight.

Mr Littrell : They found, when they looked at APRA's requirements to be an ADI, that they would not be able to meet them. The particular issues that came up, in some cases, were financial: they did not have enough capital or they had assets that we were not going to license. But a large issue was that many of them were proprietary institutions, and we do not generally license proprietary institutions with a single owner or a few owners as ADIs. They need to be either mutual or broadly held. So the ownership structure kept a lot of them out of the mix. In a few cases, it was just that they were not strong enough to be ADIs. But it was not the case that all of them were not strong enough to be ADIs; it was often their structure.

Senator WILLIAMS: When you say 'strong enough', are you referring to the size of their book or their level of capital retained?

Mr Littrell : The fact that many of them were failing. We keep track of the number of—


Mr Littrell : People who are RFCs—registered financial corporations—essentially report to APRA on statistical returns, even though we do not supervise them. There are many fewer of those today than there were in 2008.

Senator WILLIAMS: Yes.

Mr Littrell : Some of those were business mergers or whatever. Some of them were institutions going out of business.

CHAIR: With that, I thank you all for your attendance here today, Mr Byres and officers of APRA. I wish you well. I look forward to seeing you at the next estimates, in October, and I thank you for your interaction with this committee throughout the time that we operate, through various hearings, and for your wonderful participation. Your officers are always helpful with all of our offices. Thank you very much.