The Australian Prudential Regulation Authority (APRA) has argued against giving banks more favourable treatment for loans backed by lenders’ mortgage insurance (LMI).

It says it will not support moves to reduce risk weightings for LMI-covered loans, as canvassed by the Financial System Inquiry’s interim report.

Banks must apply risk weightings to loans, and have been allowed to give lower ratings to loans supported by LMI, freeing up capital.

But changes