VZCZCXRO2715
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHBN #0072 1700033
ZNY CCCCC ZZH
R 190033Z JUN 09
FM AMCONSUL MELBOURNE
TO RUEHC/SECSTATE WASHDC 4955
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHPT/AMCONSUL PERTH 1581
RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/WHITE HOUSE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L MELBOURNE 000072 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 06/19/2019 
TAGS: EFIN ECON ETRD AS
SUBJECT: MAJOR CHANGES TO AUSTRALIAN PRUDENTIAL REGULATION 
UNLIKELY 
 
Classified By: Justin Kolbeck, Pol/Econ Officer for reasons 1.4(b),(d) 
 
Summary 
------- 
 
¶1. (C/NF) The Australian Prudential Regulation Authority's 
(APRA) senior banking regulator said that changes to 
Australia's regulation infrastructure will be minor and in 
line with global consensus.  While Australia's major banks 
remain healthy, there is still substantial debate about 
whether the banking system here has returned to business as 
usual.  End Summary. 
 
Major Changes Unlikely 
---------------------- 
 
¶2. (C/NF) At a June 12 forum in Melbourne hosted by the 
Harvard Club of Victoria, Wayne Byres, Executive General 
Manager for APRA's Diversified Institutions Division said 
that changes to Australia's regulatory structure will be 
small, but in line with global consensus.  Byres, who had 
just returned from a World Bank/IMF/Fed conference in 
Washington, said that there is some debate about whether 
banks need to be smaller.  He believes, however, that the 
international regulatory community is moving toward making 
banks safer via higher capital requirements.  As the primary 
regulator for Australia's big four banks (ANZ, NAB, Westpac 
and the Commonwealth Bank) and others, Byres believes that 
existing banking regulation in Australia is robust, though he 
noted that the financial crisis in Australia will not be 
officially over until the big banks stop making use of the 
GOA's banking guarantee. 
 
¶3. (C/NF) Former Prime Minister Malcolm Fraser, who was in 
the audience, asked Byres when the Australian bank guarantees 
would likely be lifted.  Byres acknowledged that removing the 
retail deposit guarantee will be "very, very difficult," but 
noted that there are already encouraging signs that banks are 
becoming more independent.  Rick Sawers, a co-panelist and 
senior executive from the National Australia Bank (NAB), said 
that the big four banks are already making non-guaranteed 
institutional loans under profitable terms.  Sawers 
contended, however, that Australia's smaller banks still need 
the guarantees to operate. 
 
Consolidation Ahead? 
-------------------- 
 
¶4. (C/NF) There is still substantial debate in Melbourne over 
the extent to which Australia has seen the worst of the 
global slowdown.  Ric Battellino, Deputy Governor for the 
Reserve Bank of Australia (RBA) and a co-panelist, argued 
that the "financial side" of the crisis in Australia has 
passed, and that the country is now facing the after-effects. 
 Byres, however, said that small and medium size businesses 
are still struggling.  This is a sentiment we have heard from 
other contacts.  Innes Willox, International Director for the 
Australian Industry Group, told pol/econoff that many smaller 
businesses in Victoria have been unable to secure financing 
and are being swallowed by large enterprises.  According to 
Willox, this trend has been particularly strong in the 
commercial real estate sector.  NAB's Sawers admitted that 
his bank had "lost its appetite" for property risk. 
 
Comment 
------- 
 
¶5. (C) Post continues to hear conflicting accounts about 
whether commercial lending is returning to normal in 
Australia.  Bankers tell us that lending operations are 
healthy, but admit that they have reached a quota on the real 
estate and automotive sectors.  Small business owners say 
lending terms are too tough for the current economic climate 
in Australia.  There remains a strong self-congratulatory 
sentiment here that the Australian banks have sailed through 
the worst of crisis thanks largely to a strong, centralized 
regulatory authority (APRA) and sage decisions not to lower 
lending standards to unsafe levels.  End comment. 
THURSTON