APRA’s role in maintaining a strict regulatory environment is only one factor that has helped Australia’s financial institutions avoid the worst impacts of the global economic crisis.

That’s the belief of APRA GM David Lewis, who told a business continuity forum in Melbourne on Friday that local financial institutions are in the middle of a “surreal” situation where they are having to deal with “skittish and unstable” global markets that have lost confidence in financial institutions.

While agreeing that conservative regulation has played its part in keeping Australia above most of the global difficulties, he says structural differences in lending practices have also played their part.

“While securitisation has long been part of the Australian lending environment, intermediation is still the dominant model,” he said. “This has meant that incentives and risk-taking have stayed, more or less, in sync and have acted to constrain pressures to expand loan volumes without paying adequate regard to risk.”
 
And Mr Lewis says the Australian financial system is dominated by “financial institutions that are large relative to the size of our economy and, for the most part, are profitable and well-managed”.  

“Healthy risk management cultures can be observed in the vast majority of Australian financial institutions,” he said.