Concerns about a "toppy" housing market and lower growth in China are reasons for Australia's banks to continue to hold capital buffers higher than the minimum levels set by the Basel Committee on Banking Supervision, a senior executive at the Australian Prudential Regulation Authority says.
Ahead of the visit to Sydney this week by Bill Coen, secretary-general of the Basel Committee, for The Australian Financial Review Banking & Wealth Summit, APRA's executive general manager of supervision and support, Charles Littrell, said on Friday that the concentration of lending by the big four banks into property markets is a "perpetual concern" for the prudential regulator. 
"It is a significant issue of concern to us that close to two-thirds of [the big four banks'] balance sheets are exposed to property ... mainly housing loans," Mr Littrell said. "It is fair to say in the past year we have worried about it a bit more because of the point we are at in the cycle."
The economy's reliance on continued strong economic growth from its largest trading partner, China, is another reason APRA wants local banks to hold equity higher than demanded by the international standards setting body based Switzerland.
"Australia has taken a big national bet on the rise of Asia, in particular on the rise of China, from a developing country to developed status," Mr Littrell said.
He described APRA's stance of forcing the banks to hold higher levels of equity than they might like as an "insurance policy" against that bet.
"Most of Australia does business on the basis that China is going to continue to rise relatively smoothly and that the Communist government can manage macroeconomic policy. At APRA we are not so convinced," he told an Australian Centre for Financial Studies event in Melbourne on Friday.
"Australia's economy has done absolutely brilliantly well for a really long time, but it is brittle: this could all go away quite rapidly.
"Our aspiration for the major banks is that they are not accelerants in that situation, but shock absorbers."
The financial system inquiry chaired by David Murray said Australia's banks should be "unquestionably strong" compared with global banks because of our reliance on international funding for growth; APRA has said strength will be determined on a range of measures.
Mr Littrell said there is plenty of focus internationally on banks that are "too big to fail", but the relative importance to the economy of the Australian banks means they are "almost too big to get sick".
Mr Coen will deliver a keynote speech to the Australian Financial Review Banking & Wealth Summit on Tuesday on the direction of the global banking regulatory agenda.
APRA chairman Wayne Byres will follow Mr Coen's presentation.
The Basel committee is consulting on proposals to limit the use by big banks around the world, including Australia's big four, of their own risk models, which analysts suggest will further reduce bank leverage.
"We have already said we are not going to announce our final capital strategy until the end of this calendar year, but it will ultimately be a higher capital requirement than we have now," Mr Littrell said.
"We have indicated quite strongly that it won't be that much higher that the banks couldn't get there either by raising the money or accreting the capital over a few years from dividends."
Compared to counterparts in the US, Britain and Europe, Australian banks are relatively advanced in increasing their capital buffers and improving the quality of their capital, and have been pushing out the tenor of their wholesale funding since the global financial crisis of 2008, although APRA suggested last week there was still work to do to reduce reliance on short-term funding, which is considered less stable.