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Australian bank regulator happy to be seen as tougher than the rest

[SYDNEY] Australia's financial regulator is happy to be considered as tougher than the rest of the world, while local lenders press the supervisor to align its standards with international peers.

A major review of Australia's financial system is due later this month. Backed by the government, it is the first major banking inquiry since 1997, which led to the creation of the Australian Prudential Regulatory Authority (APRA). "To the extent that Australian banks are perceived as being more conservatively regulated and supervised than the rest of the world, well, that's definitely the intention," said Charles Littrell, executive general manager in policy, statistics and international regulation at APRA on Tuesday.

Speaking at a debt conference, Littrell said he wanted Australian securitisation relative to the rest of the world to be perceived as safe, simple and reliable.

Australia managed to weather the 2008/2009 global financial crisis thanks to a robust financial sector and strict lending standards. The nation's top banks are rated among the world's safest at AA minus by Standard & Poor's and Aa2 by Moody's. S&P ranked Australia's banking sector alongside Canada, Singapore, Hong Kong, Japan and Germany.

Local banks, however, are urging APRA to be more flexible, saying they face tough international competition.

For instance, APRA requires Australian securitisation deals issued by Australian banks, to withstand a loss of 20 per cent of the value of the pool, far more than the 5 per cent mark in Europe.

Moreover, APRA has yet to allow Australian lenders to use master trusts, a widely used structure in international securitisation deals. A master trust is an investor-friendly structure which reduces the risk of prepayment.