the chairman of the Australian Prudential Regulation Authority (APRA), John Laker, has reinforced the need to build up the regulator’s resources by pointing to the manner in which Australia’s long period of economic growth has given rise to a generation of bankers who have not known adversity.

In a speech to the Australian Institute of Banking and Finance Forum, Laker said one of the legacies of Australia’s long economic expansion was that a generation of new bankers had only known “good times”.

“They have not been exposed to the early 1990s experience of recession, a major shake-out in the commercial property market, and the sharp deterioration in credit quality,” he said.

“For some years, this new generation will have witnessed the dominance of the sales side in the endless internal competition within their institution between risk managers and sales people for funding, management attention and the tactical and strategic decisions taken by the business,” Laker said.

“In addition, this new generation and those around them are more likely than their predecessors to have incentives in their salary packages tied to short-term share price growth, whether in absolute or relative terms.”

He said that while Authorised Deposit-taking Institutions (ADIs) needed to go back to the early 1990s for examples of financial distress, the experience of HIH Insurance stood as a stark reminder that drastic falls from grace could occur if those in charge lost their way.

Laker pointed to the need for boards to encourage strong cultures with respect to corporate governance, and warned that history had shown what could occur if a chief executive was allowed to become too dominant.

Laker said that if boards were unwilling to act in such circumstances then “APRA certainly will if it believes beneficiaries are being jeopardised by mavericks”.