Australian Prudential Regulation Authority chair Wayne Byres has defended bank profitability as a necessary buffer for a likely economic downturn.
Byres said a typical economic cycle is "eight good years and two tough years" and that banks should be able to "earn something above your cost of equity in the good times where inevitably you build up the buffers to hold you in good stead when the cycle turns."
"We are very conscious that we are running on a long cycle and inevitably it must turn."
"We haven't found a way to abolish the cycle. We are a small country in a global economy and as well as we manage things in this country we always get tossed around by events overseas."
Byres said while the system was in good shape, there should be a focus on building up its resilience.
"At some point the cycle will turn and we want to be able to say, when the times were good, we put aside something for a rainy day. The rainy day has arrived and we can move through it."
APRA's function is to protect the savings deposited into the banking system by making sure these institutions are sound.
ASIC and APRA form part of the Council of Financial Regulators, along with the Reserve Bank and the Treasury, and work in concert on certain issues, including macroprudential policies
Byres refused to even mention the "B-word", the Australian Financial Review noted after he spoke at an annual ASIC forum.
"It is superficial. It implies we are binary. We are in it [a bubble], we are not in it. If we are in it we're all going to [be] ruined. If we are not in it we're going to be right. It's too simplistic."