APRA IS confident that the Australian banking and insurance sector is well placed to weather the drying up of credit and loss of liquidity, and subsequent stock market crashes now being experienced on world markets.

Australian Prudential Regulation Authority chairman, Dr John Laker, told Senate estimates hearings in Canberra last month that clearly the institutions it oversees were now in a difficult situation, and APRA was now in a “heightened state of alert”.

He said the main test for insurance companies was the increase in adverse weather, but they were well capitalised.

“We worry for a living, and these are difficult times,” he said in response to questions. “When I can provide a positive statement it is a straight up and down statement that we have a strong financial system and it is being tested,” he said. “We are not complacent about what lies ahead. It is a difficult period,” but he said banks had still been able to raise sufficient amounts to fund their balance sheet growth.

Dr Laker said margin lending, which has come under intense scrutiny with the huge market volatility seen in recent months had grown significantly as retail investors in particular had sought to take advantage of the booming markets. But he stressed it remained less than 2 per cent of banking industry assets.