Australia’s financial services sector was the unsung hero of the country’s resilience during the SGF and the years that followed. Discuss, with careful reference to policy decisions that shaped the sector. ” Courageous, noble, outstanding achievement, this is how a hero is defined by the Oxford dictionary. To say Australia’s financial services sector exuded these qualities throughout the SGF may be a long bow to draw. Alternatively you could also look at the Hollywood definition of a hero, overcoming adversity, danger and peril to walk away from the smoldering remains largely unscathed and victorious.
If the SGF is the smoldering remains then Australia’s financial services sector is the hero. No bailouts were required and no depositors or creditors lost money (McFarland, 2014). I however, believe that some of the policy decisions undertaken over the decades by both sides of Australian government were indeed courageous and noble, and it was these decisions that lead to the outstanding achievement of the financial services sector through the turbulent SGF years.
To look for the origin of resilience that embodies Australia’s financial services sector, our eyes must be cast back several decades to the Hawked-Keating governments’ implementation of the majority of the recommendations from the Campbell
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Campbell In first looking at The Campbell Committee, this inquiry looked into the performance ministrations that regulation was having on the Australian financial system and recommended changes to promote increased efficiencies and stability (Campbell, 1981). The findings were presented in 1981 and in total 260 recommendations with respect to the financial sector were made (Thesis). Whilst many of these recommendations upon implementation had impacts on the financial services sector during the SGF, there are several key recommendations that shaped the economic landscape and profoundly impacted upon future monetary and fiscal policy.
These key recommendations include; Removal of regulations imposing direct controls on interest rates and portfolio composition, higher prudential standards, allowing the entry of foreign banks to the Australian market, amendment to the banking act in 1989 to allow the introduction of prudential requirements by regulation and the floating of the Australian dollar (Campbell, 1981). In implementing these recommendations governments increased the ability of natural market forces to shape financial markets all whilst under appropriate levels of regulatory supervision (Chapter 14).
Float The floating of the Australian dollar in 1983 was one of the most significant economic MAGMA’S Essay, Economics By smack for the Reserve Bank of Australia (ARAB) to implement modern monetary policy allowing it to pursue a medium-term target for inflation and short-term to affect cyclical changes in economic activity (Stevens, 2009). The independence of the ARAB ensures its ability to act swiftly in the implementation of monetary policy, which proved to be vital during the SGF in promoting domestic price stability and growth (ARAB Statement).
Foreign Bank Entry In opening the doors and allowing the entry of foreign banks into the Australian market, greater competition was introduced to the sector. Similarly to other economic sectors, free flowing and effective competition brings about numerous advantages. Customers have increased supply of financial products, innovation propagates through the sector, prices decrease and financial institutions increase their competitiveness (COED, 2009).
Importantly, competition drives efficiency, cementing the position of well run and performing financial institutions and removing the inefficient (COED, 2009). From 1984 to 1988 the “number of banking groups rose from 1 5 to 34 and the number of merchant banks from 48 to 1 1 1” (Beaumont, 2007). The Australian finance sector saw a four-fold increase in capital and a 150 percent increase in credit, which not surprisingly corresponded with a significant increase in both commercial and private borrowings and subsequent investment (Beaumont, 2007).
However in the recession of 1992 the poor quality of lending that occurred during this time was brought to light resulting in significant losses to financial institutions on the back of their substantial exposure to falling asset prices (Kicky and Lowe, 2000). As a consequence of this experience a tightening of capital requirements and strengthening of the capital base was adopted as recommended by the Campbell Committee (Wallis Summary chapter 16).
As Australia recovered from the recession competition within the banking sector continued to increase, as did the range of financial services on offer, both of which contributed to the strengthening position of Australia’s financial institutions (Kicky and Lowe, 2000). However this experience highlighted the fact that prudential regulation and oversight had not matched the speed in which the financial sector was evolving (Kicky and Lowe, 2000). In continuing to examine the policy decisions that shaped the resilience of the Australian financial services sector the findings and recommendations of the Wallis
Inquiry, presented in 1997, offer further insight and explanation. The inquiry was established to provide a review of the outcomes of financial deregulation that had arisen from the implementation of the Campbell Committees recommendations. On top of this recommendations were to be made on the regulation of the financial services sector to ensure performance, stability, prudence, integrity and fairness (Wallis, 1997). One of the key proposals of the Wallis Inquiry was the restructuring of the existing regulatory framework into three distinct agencies with clear functional lines (Wallis Summary, 1997).
These being; “Reserve Bank of Australia – Responsible for monetary policy, systemic stability, payments systems regulation. Australian Prudential Regulation Commission – Prudential regulation of deposit taking Financial Services Commission – Market integrity, consumer protection, corporations. “(Wallis summary, 1997) The policy decision to establish Australian Prudential Regulation Authority (PAR) in 1998 provided the regulatory framework and supervision that gave the Australian financial services sector its resilience during the SGF.
It is the role of PAR to actively supervise regulated financial institutions to ensure they hold and implement prudential standards based upon effective governance, risk management and capital adequacy (Drawbridge, 2009). Basel II, With the collapse of Lehman Brothers in September 2008 the SGF had moved into top gear. It was shortly after this that the Rued government introduced a number of fiscal policy measures designed to support domestic demand when confidence was low and uncertainty high (Tirana, 2010).
Moving in unison with the Rued governments stimulus was the ARAB monetary policy decision with a 100 basis point cut to the cash rate. The Wallis inquiry also commented on the effect of foreign bank entry into the Australian market. It said that whilst increases in competition in the home lending market were only beginning to come to fruition there was significant increases to pricing efficiency within the securities and foreign exchange markets which improved the efficiency of resource allocation (Wallis, 1997). Four Pillars Policy.
The intense competition for corporate control that led to multiple takeovers in the US and Europe was absent here, at least between the major four banks. The threat of being taken over often leads to banks increasing risk in order to raise their earnings and share price as a defense, or as a means of being the redactor rather than the prey. It is informative that the two COED countries whose banking systems did not need to be bailed out were Australia and Canada. These were the two countries where major banks were not permitted to takeover each other.
Doubling of the First home owners grant. Budget surplus years for Howard Question can be asked, was it god fortune? Mining boom. It is also why PAR supported the Government’s intervention as prudent and necessary. The Government’s guarantee of deposits and term debt issues was designed to boost confidence in the Australian banking system and ease funding erasures (Lewis PAR 2009). Martin committee of review. Exports, trade balance during SGF. GAP The assistance the Government did provide was in two forms: First, a deposit guarantee… Which was there primarily to protect smaller banks, as the big banks were gaining market share in deposits. And let’s be clear… The protection was for depositors. Bank shareholders still took a hit. And second, a wholesale funding guarantee was provided to all banks to enable them to continue to access funding markets – and they were required to pay for it. By the end of February this year, banks had paid almost $3. Billion to the Federal Government for this guarantee. 3 Wages were fixed centrally before Hawked Keating. What effect did this have?
Pre-SGF Australia had no material net public service debt. Campbell Committee Recommendations. ARAB intervention in the forward foreign exchange market to be consistent with principles for intervention in the spot foreign exchange market. Dismantle the institutional arrangements for fixing the exchange rate and dismantle exchange controls. Remove the embargo on entry of foreign banks, and regulation of new entrants that is no more onerous than for incumbents. Amend the Banking Act 1945 to allow introduction of prudential requirements by regulation. Banking Act 1945 amended in December 1989) Subject individual banks to appropriate capital requirements, with bank capital to be assessed on a consolidated basis. (ARAB introduced consolidated, risk-weighted capital requirements for banks in August 1988) adoption in 1988 of internationally accepted risk weighted capital adequacy guidelines which sought to ensure that the amount of capital held by a bank was sufficient to protect depositors from loss important long-term result of the float, one hat Stone attempted to prevent, was that the Reserve Bank became increasingly independent of Treasury.
As the global financial crisis struck, the dollar plunged by one-third, making our exports more competitive, after also falling in the Asian financial crisis. It has also played a necessary, if painful, role in helping us manage the biggest resources boom since the sass. Until now, most commodity booms have ended in high inflation and unemployment. The latest one has been different. The dollar’s rise above $JUS after the financial crisis helped prevent an outbreak of price sees, by slowing sectors such as manufacturing and tourism Read more: http://www. Mm. Com. AU/comment/SMS-editorial/Paul-Keating-was-a- visionary-floating-the-Australian-dollar-20131212-zappy. HTML#ixzz30Rm5QFN5 References Campbell, K, Final Report of the Committee of Inquiry into the Australian Financial System, GAPS, Canberra, September 1981. Kennedy, S. 2009, ‘Australia’s response to Stevens, G. AAA, ‘The Conduct of Monetary Policy in Crisis and Recovery Address to the John Curtain Institute of Public Policy and the Financial Services Institute of Australia Public Policy Breakfast Forum, Perth, 15 October.