Regulatory Failure and the Global Financial Crisis

Regulatory Failure and the Global Financial Crisis

An Australian Perspective

Edited by Mohamed Ariff, John H. Farrar and Ahmed M. Khalid

This fascinating book presents a lively discussion of key issues resulting from the recent financial crisis. The expert contributors explore why the global financial crisis occurred, how it destroyed wealth, triggered mass unemployment and created an unprecedented loss of control on employment, monetary policy and government budgets.

Chapter 10: Balancing National and International Interests

Wayne Byres

Subjects: economics and finance, financial economics and regulation

Extract

Wayne Byres 10.1 INTRODUCTION Readers may be familiar with the work of Ross Gittins, who writes on matters of economic interest for the Sydney Morning Herald. The following is quoted from one of Ross’s articles on the subject of prudential supervision: To everyone but the supervisors and the supervised, it’s a dull subject. That’s because, in 19 years out of 20, nothing of interest happens. We don’t give a second thought to the stability of the financial system because we know it’s stable; always has been, always will be . . . But you can see where this story is leading: this is the one year in 20.1 What’s notable about this statement is that it is quite prophetic: the quote comes from an article he wrote in 1990, the last time financial system problems put prudential supervision in the public spotlight. Twenty years later and, as predicted, once again prudential supervision is the talk of the town. This chapter will discuss the case for reform, some of the more important items on the reform agenda for banks, and the Australian Prudential Regulation Authority (APRA)’s perspectives and approach to dealing with them in an Australian context. Our objective is straightforward: to get the reforms just right – not too much, not too little. But that, we explain later, is not an easy task. The case for a reform is found in section 10.2, followed by the agenda for reform described in section 10.3. Consensus-building challenge is the theme of section 10.4 on national...

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