The head of Australia's bank regulator will end his term almost two years early, announcing he will step down from the role at the end of October.
Mr Byres has been the chair of the Australian Prudential Regulation Authority (APRA) since July 1, 2014, and he was reappointed to another five-year term commencing July 1, 2019, by then-treasurer Josh Frydenberg.
However, Mr Byres has advised the Governor-General of his intention to step down as APRA chair on October 30, 2022.
Mr Byres said he thought the time was right for a change in leadership at the regulator, which oversees banks, insurers and superannuation funds.
"There is always more to do, but the financial system is stable, APRA's leadership team is strong, and the organisation and its people are well placed to continue to manage future challenges," he said in a statement.
"Against that backdrop, I feel that now is a good time to hand over the chair's role to someone new, who will lead the organisation on the next stage of its journey."
Treasurer Jim Chalmers said in a statement the government would "undertake an open and transparent process to select the next APRA chair".
"I thank Mr Byres for his outstanding contribution to APRA and his dedicated service to Australia," Mr Chalmers continued.
"He'll be greatly missed but I wish him well.
Mr Byres has held a number of senior roles at APRA since its establishment in 1998, also spending time as the secretary-general of the Basel Committee on Banking Supervision before being appointed as APRA chair.
'Biggest hospital pass in history'
In contradiction to Mr Byres' comment that "now is a good time to hand over", some people involved in financial markets and the banking sector believe his successor will face the most challenging environment in decades within the next 18 months.
"It looks like the biggest hospital pass in history," one investor told ABC News.
That investor praised Mr Byres' implementation of the Murray banking inquiry's recommendation to increase big bank capital buffers so that they were "unquestionably strong".
However, they also noted that dropping the seven per cent interest rate floor on serviceability tests meant some mortgage borrowers could soon be paying higher repayments than they were tested for when they applied for their loans.
This is especially true for people who took on ultra-low fixed rate loans, many of which had interest rates below two per cent, and most of which will roll back on to much higher variable rates before the end of next year.
Martin North from Digital Finance Analytics said, on his survey data, somewhere between 300,000-400,000 Australian households will be at serious risk of being unable to meet their rapidly rising repayments.
"From a financial stability perspective, we know that debt is very high, we know that 40 per cent of households have no buffers when it comes to their mortgage repayments, even their reserve bank is now admitting that," he said.
"You only need a few per cent of households to go wrong with their loans to really put a lot of pressure on the banks.
APRA's focus on banks, not customers
Even if the increased capital requirements mean the banks can withstand any significant increase in mortgage defaults, Mr North said APRA has no focus on the thousands of borrowers who might be forced out of their homes, potentially still owing money on their mortgage.
"There's no focus on the consumer impact," he told ABC News.
Mr North said that was not solely down to APRA, with the organisation's charter giving it a narrow focus on protecting financial institutions from collapse, not protecting their customers from inappropriate products, which is mainly the role of ASIC.
"My own view has been for some time, it's Treasury that's been pulling the strings here," he argued.
"The Treasury ultimately is neoliberalism on steroids, and what we're seeing is the fallout of that in terms of monetary policy, financial stability policy, and other things too."
Mr North said, in his view, much of the laissez-faire attitude towards financial regulation came right from the top, out of the then-treasurer's office.
"Frydenberg was trying to remove responsible lending completely from [being] an obligation on the banks. So that was pushing it really far to say, 'it's down to individuals, if they want to take big loans, that's fine'," he contended.
Despite this view, Mr North also remains highly critical of APRA under the leadership of Mr Byres, saying it is too close to banks and too close to Treasury.
"The bottom line is that APRA was not free necessarily to do the things that APRA needed to do. But Byres also, I think, didn't necessarily stand up the way that I would have expected him [to]," he said.
"If he was a fearless free regulator I think he would have been more forceful."
For its part, the banking sector thanked Mr Byres for his public service, and particularly welcomed his "nimble and pragmatic approach" to regulation during the pandemic.
"Over the past eight years, Mr Byres has provided a steady hand and strong leadership, both in Australia and internationally, particularly through the very stormy economic waters of recent times. He has made an invaluable contribution," Australian Banking Association chief executive Anna Bligh said in a statement.
"The prudential strength of Australia's banks enabled them to act as shock absorbers and support their customers through the pandemic."
RBA review should look at APRA, says North
Mr North said he hopes that the Reserve Bank inquiry, which encompasses a review of macro prudential (banking and financial regulation) policies as part of its terms of reference, will examine this area, especially with regard to housing.
"You can't look at the Reserve Bank without looking at APRA, because they ying and yang," he said.
"To me, just saying 'it has nothing to do with us' is a cop out."
Mr North also hopes that the next APRA chair comes from outside of the organisation.
"I would hope they will bring in somebody with good international credentials to really go through with a clean broom," he said.
