It's taken a royal commission for APRA chief Wayne Byres to begin to find his voice and speak directly about the endemic strife in Australian banking. At a closed door conference of senior staff from around the South Pacific yesterday Byres blasted the Australian banking industry.  Byres' themes yesterday were those of Kenneth Hayne, whose damning report on the Australian financial services industry risks diverting sector management from mitigating a monumental banking crisis. The retrenchment in credit availability is morphing from supply driven to a demand driven catastrophe.The Australian housing bust will be a black swan event indeed if current tailwinds falter.Financial instability is taking off, and at a Basel Committee and Financial Stability Institute soiree in Sydney, Wayne Byres could only encourage the thought.Delays and obstinacy in adapting to a financial reform agenda is a worldwide problem for banking, Byres explained."This reveals a disappointing penchant to put the interests of banks and their shareholders above that of their depositors and the broader community," he complained, cautioning this is "something that prudential supervisors must constantly guard against".In the sharpest language used by Byres yet, the APRA head vented over "the corrosive impacts [of] a misaligned culture".Speaking of Australia's biggest banks, Byres spelled out simmering risks facing the sector, "driven by poorly directed incentives, an absence of real accountability, and a short-term focus on share prices and dividends," which combine and corrode and thus impact "on an institution's long-term financial and reputational standing," Byres said. "Good policies and frameworks may be established, but without the right culture they are no guarantee of good practice."Supervisors can't be everywhere, Byres said - a fact all too true at APRA - so "it's necessary to focus supervisory attention on the strength of a bank's own policies and systems of governance, risk management and control. These must always be the primary lines of defence, and making sure they are as robust as possible is the typical modus operandi of supervisors around the world. "However, our experience in recent times has highlighted some important ways that these lines of defence are undermined, and to which we will need to pay more attention in future."Byes listed in some detail "three recent examples.""The first is in the area of mortgage lending. In 2014, we initiated a quite intensive supervisory effort to lift and reinforce lending standards. Our concern was that due to strong competitive pressures, policies were not suitably calibrated to the Australian environment at the time - one of high and rising house prices, high household debt, subdued household income growth and historically low interest rates. "We issued additional supervisory guidance, and allocated significant resources to ensure lending policies were suitably aligned with it. "Unfortunately, this provided evidence that strong incentives to grow profit and market share often saw lenders weaken and/or override policies in order to generate sales. Moreover, the dangers did not seem to be strongly called out by compliance and audit functions."Another example was the area of remuneration … Our institutions had the requisite