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The COVID-19 pandemic significantly changed APRA’s operating environment. The health crisis brought with it an economic crisis as countries shut borders, and imposed lockdowns and other restrictions on public movement and social gatherings. The subsequent economic contraction was more severe than anything seen since the Great Depression.

The onset of COVID-19 required APRA to quickly reset and reshape its priorities. The sharp economic contraction caused by COVID-19 necessitated a redeployment of resources to focus heavily on (initially) operational resilience, and then financial resilience. The effort directed to stress testing and contingency planning was also increased. To accommodate this shift in priorities, in March 2020 APRA announced the suspension of a large part of its policy and supervisory agenda, the temporary suspension of the APRA Connect data collection project, and postponement of the issuance of new banking and insurance licences.

COVID-19 required APRA to adopt a broad perspective when identifying and responding to the risks and vulnerabilities that had the potential to threaten the stability of Australia’s financial system. At the heart of the challenge was a collective action problem: that is, that steps by individual financial institutions to protect themselves from the economic impact of COVID-19, such as reducing their risk appetite and conserving their financial resources, could prove to be counter-productive if taken by all institutions at the same time.

APRA has therefore sought, where possible, to act in a counter-cyclical manner. This meant temporarily relaxing a number of regulatory and supervisory expectations, often in support of actions by other arms of government and/or the industry to provide help to the community. Most notable has been the relaxation of expectations in relation to bank capital levels, and in providing a concessional capital treatment for loans subject to repayment deferrals. However, in providing regulatory relief and reducing burden, APRA also sought to ensure this did not materially undermine the fundamental strength of the financial system. As a result, in a few areas – most notably with respect to capital management and the payment of dividends – APRA took restrictive measures to ensure its regulatory concessions were used for their intended purpose: to preserve resilience and support financial businesses to continue to serve their customers. Throughout, APRA has been conscious that a stable and resilient financial system remains a critical foundation for Australia’s economic recovery.

COVID-19 also challenged APRA’s own ways of working. At the onset of the crisis APRA split its workforce into two teams, alternating time in the office to limit contamination risk. However, as the rate of infection in the community grew, APRA closed its offices entirely in late March and moved to a full work-from-home model. Whilst this brought challenges, APRA’s employees adapted well and the transition was implemented relatively smoothly with little disruption to operations.

To date, the financial system has stood up well to the shock caused by COVID-19. APRA has been able to modify its prudential framework in a targeted manner to help facilitate the various support measures that have been put in place to assist the Australian community through a period of considerable disruption. However, while the financial system has proven to be resilient so far, it is yet to be fully tested: many support measures are temporary and the full impacts of the shock are yet to be felt. This will require APRA to continue to closely monitor the health of the financial institutions it regulates, and respond quickly to any early signs of stress that might emerge.