Australian Prudential Regulation Authority chairman Wayne Byres has given a lukewarm response to the Financial System Inquiry's recommendation that a new body be set up to conduct an annual review of the financial regulators' performance. The FSI recommended that a new body, the Financial Regulator Assessment Board, be established to review the performance of the financial system regulators on an annual basis and provide advice to government.  The board would look at how the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission had implemented their mandates. It would also review the Reserve Bank's performance in handling its payments system regulatory functions. The FSI said the intention was not to have the board direct the regulators, review particular decisions or examine complaints against them. The board would replace the current Financial Sector Advisory Council and would have industry representation. Speaking at yesterday CIFR workshop on the FSI, Byres said there were already checks and balances in regulatory system, including Parliamentary committees, the Office of Best Practice and court review. Byres said: "We don't have any objection to the FRAB but we have to think about how it fits into the broader accountability framework. The devil is in the detail." Byres said his overall view of the report was that it was "a very balanced package of recommendations, with a sensible overall direction." "I don't have any concern with the increased prominence it seeks to give to competition. The only thing I would say is that we should not pretend that competition and stability are mutually exclusive. We don't accept that there is a trade-off. "What we are looking for is sustainable competition." He said the report's first two (and possibly most important) recommendations, relating to the appropriate level of capital ratios and mortgage risk weights, could not be considered in isolation of what was happening internationally. "The FSI and international regulators are heading in the same direction but not necessarily with the same detail," he said. The FSI's first recommendation was that capital standards should be set "such that Australian authorised deposit-taking institution capital ratios are unquestionably strong." It recommended a baseline target in the top quartile of internationally active banks. Its second recommendation was that the prudential regulator narrow the difference between the mortgage risk weights used for capital purposes by lenders using the internal ratings-based methodology (the big banks) and lenders using standardised risk weights.  Byres said: "The international agenda is moving on. It is hard to settle on these things without having a clear picture of the destination of those international reforms. And then we need to give a lot of thought to how we bring these things together."