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Strategies for Banking Sector Modernization Lessons from the Australian Experience

Strategies for Banking Sector Modernization Lessons from the Australian Experience Professor Ian Harper Melbourne Business School Bank of Thailand Conference Modernizing Our Financial System Bangkok, January 2002. A Wallis Timeline. March 1997 — Wallis Report submitted

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Strategies for Banking Sector Modernization Lessons from the Australian Experience

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  1. Strategies for Banking Sector Modernization Lessons from the Australian Experience Professor Ian Harper Melbourne Business School Bank of Thailand Conference Modernizing Our Financial System Bangkok, January 2002

  2. A Wallis Timeline • March 1997 — Wallis Report submitted • Sept. 1997 — Govt. accepts 114 of 115 recommendations • July 1998 — new regulators operational • July 1999 — non-bank regulation transferred to C’wealth • October 2001 — Financial Services Reform Act in force

  3. Forces for change (1) • changing customer needs and preferences • as populations age, people need access to higher rates of return on their savings, which only come with higher risk • customers are becoming more sophisticated in their demands and use of technology • advancingtechnology • improvements in information and communications technology are reducing “information asymmetry”, favouring markets over intermediaries

  4. Forces for change (2) • globalization • freer flows of goods & services, capital and labour across borders is heightening competition in national markets • especially true of information-based services • regulatory developments • regulations are focusing on function rather than institutional form, i.e., “integration” of regulation • a growing emphasis on disclosure and conduct regulation in addition to traditional prudential controls, e.g., 3 pillars of Basel 2

  5. Changing financial landscape • more participants, channels & products • traditional boundaries are blurring • non-traditional players are emerging • capital markets are challenging intermediaries

  6. Logic of the Wallis Report Change regulationsto promote competition while maintaining safety Need to raiseefficiencyand lower cost Changing financial landscape

  7. Key elements of Wallis • a streamlined regulatory structure based on functional not institutional distinctions — “competitive neutrality” • freer entry into all parts of the financial system — “competition & contestability” • facilitation of financial conglomerates to realise economies of scale & scope • an emphasis on financial products & services rather than financial institutions

  8. Australia’s regulatory framework Australian Securities and Investments Commission ReserveBank Australian Prudential Regulation Authority of Australia Payments System Board Payments Monetary Prudentialregulation of Market integrity Disclosure Consumer protection Corporations Law system - deposit taking policy -lifeinsurance Systemic -generalinsurance stability -superannuation c

  9. Latest reform initiative – FSR Act • Single licensing regime for financial sales, advice and dealing: • “Australian Financial Services Licence” • covers all financial intermediaries, including insurance agents, brokers, securities advisers, dealers, futures brokers • brings the life, superannuation, general insurance and securities industries under one licensing regime

  10. Unfinished business (1) • Reform of general insurance regulation • under way prior to HIH collapse but now on a fast track • HIH Royal Commission may make additional recommendations • Reviewing prudential regulation of superannuation (pension) funds • is there a need for greater prescription of trustee investments?

  11. Unfinished business (2) • Review of access rules and interchange arrangements in credit card business • Reserve Bank Payments System Board has ‘designated’ credit card systems • recommendations for freer access to schemes by non-financial institutions and limits on interchange fees have been released for public comment • Future of the ‘Four Pillars’ policy • how long can the Government refuse even to consider mergers amongst the four major Australian banks?

  12. Lessons learned • The value of a vision • reforms need to be coherent and consistent with a credible view of the future • The importance of speedy implementation • slow transitions can be costly and confusing • loss of corporate memory is potentially disastrous • The support of existing regulatory agencies is vital • there should be as much buy-in as possible • include the agencies in the decision-making process but drive it from the top

  13. Strategies for Banking Sector Modernization Lessons from the Australian Experience Professor Ian Harper Melbourne Business School Bank of Thailand Conference Modernizing Our Financial System Bangkok, January 2002

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