Wayne Byres and APRA are finally starting to talk sense on bank dividends. "There will be much harsher choices for bank boards to make about how much of their reduced returns they need to retain to grow their balance sheets and fund balance sheet growth, and how much they can afford to return to shareholders," Byres told the Economics Committee of the House of Representatives yesterday. Byres said that banks, meaning big banks, too readily paid dividends at high payout ratios and, prompted by a question, agreed this could play a role in underinvestment by banks in technology upgrades for compliance and risk management systems. He also pointed out that "very low interest rates, while undoubtedly appropriate for the economy as a whole, are adding further headwinds to the financial sector". "Profitability, and therefore capital generation - essential for balance sheet growth - will come under more pressure." Confirming that adverse winds are blowing hard, ABS data on company profits in the finance sector shows that finance and insurance profits fell 28 per cent over the September 2019 quarter from the June quarter and in the latest quarter the sector's profits are half what they were in the 2017 quarter. In his prepared remarks, Byres hoped straight into the hot industry topic of the last two weeks, the Austrac statement of claim in relation to Westpac. "These are very serious allegations which have caused us, as the prudential regulator focused on the financial safety of institutions and the system, to carefully consider what they mean for the prudential standing of Australia's second largest bank. "The bank is financially strong, but the Austrac matter has raised issues of governance, culture and accountability in relation to risk management, particularly as it relates to AML/CTF obligations. "While we must be careful not to duplicate or cut across matters for which Austrac is the appropriate regulator, and which are before the Courts, we are actively considering what further action by APRA is required." He said  this includes examining Westpac's obligations under the Banking Executive Accountability Regime, and Westpac's management of operational and compliance risks."