Banks say regulations will dent lending capacity

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By Robert Carry

Moves proposed by the banking regulator as part of a bid to improve public confidence in financial institutions could impede ability to write new loans, a number of banks have protested.

According to reports in The Sydney Morning Herald, several of Australia's major banks have been lobbying the Australian Prudential Regulation Authority (APRA) behind-the-scenes over its plans to change rules requiring banks to have enough available cash on hand to fund operations from the current five days to 30 days.

However, banks are arguing that this could mean billions of dollars in largely unproductive assets being set aside, hurting profitability. Executives are claiming that such severe measures are unnecessary given the Australian banking sectors comparatively strong performance during the global financial crisis and its current healthy state.

Annual reports from the major banks, many of which are set for release in the coming weeks, are expected to reveal profits of over $11bn in cash earnings. The APRA is currently accepting feedback on its proposals, which it is set to finalise by the end of next year. 

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