Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Hansard source

The Australian economy faces tough global economic times. The developments in US financial markets during the course of this week have underlined that fact. There was more uncertainty in financial markets in the United States overnight. Stocks fell in the US, with the S&P 500 down nearly five per cent. Financial stocks were particularly weak, with the S&P financial index losing nearly nine per cent. Approximately US$4.4 trillion of market value has been erased from global stocks this week.

This is a very significant global financial crisis that we are in the midst of. Honourable members will be, in part, familiar with the US regulators’ response, including the action by the Federal Reserve to lend up to US$85 billion to the American International Group, AIG, the significant global insurer which was the subject of some discussion in the House yesterday. The Fed said:

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduce household wealth, and materially weaker economic performance.

The US Treasury also issued a statement overnight announcing that it will sell more debt to enable the Federal Reserve to expand its balance sheet to accommodate any subsequent bailouts. The program will start immediately with a US$40 billion auction of 35-day bills. The proceeds will provide cash for use by the Fed as it seeks to boost liquidity in credit markets.

Furthermore, in another development in the last 24 hours—and the government welcomes this particular development—the US Securities and Exchange Commission has taken action to strengthen investment projections against naked short selling. The SEC actions apply to the securities of all public companies, including all companies in the financial sector. The SEC chairman, Christopher Cox, has said:

These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling.

The IMF managing director, Dominique Strauss-Kahn, has said in relation to future developments in global financial markets, ‘We continue to anticipate a gradual global growth recovery in 2009.’ I note, in particular, that the IMF’s managing director has been very, very balanced with his remarks about the state of US and global financial institutions over the course of the last 12 months.

Australia is not immune from these developments in the global economy, but we are better placed than most to weather the current economic and financial storm. I have been in contact with our regulators, including APRA, the RBA and the Treasury. We are, in fact, closely monitoring the situation on a daily basis. APRA today advised me of their assessment of developments around AIG, HBOS and other relevant financial institutions. Their advice is as follows:

Australian deposit taking and insurance companies supervised by APRA are well-capitalised, profitable, and well-regulated, and are weathering the turmoil well. Australian depositors and insurance policy holders can be confident in the soundness of Australian financial institutions.

That was from John Laker, the chairman of APRA.

The government has already taken action to advance the financial claims scheme, which was recommended by the Financial Stability Forum in April this year and had also been the subject of domestic recommendation here in Australia five years ago. The government has also been actively implementing other Financial Stability Forum recommendations concerning strengthening the prudential oversight of capital, liquidity and risk management; enhancing transparency and valuation; implementing changes in the roles and uses of credit ratings; strengthening the authority’s responsiveness to risks; and establishing robust arrangements for dealing with stress in the financial system. It is not just Australian national action which is required in these areas but also appropriate international action.

The Australian government and the Australian economic regulators have been in daily contact with their American counterparts in recent days, given this most recent spate of developments in financial markets. Earlier this year, in March, I met with Secretary of the Treasury, Hank Paulson; the Deputy Secretary of the Treasury, Robert Kimmitt; the Chairman of the Federal Reserve, Ben Bernanke; the Chairman of the Securities Exchange Commission, Christopher Cox; and the Managing Director of the IMF, Dominique Strauss-Kahn. Also on that occasion, when in the United Kingdom, I met with the Governor of the Bank of England, Mervyn King. When I am in the United States next week my intention is also to continue contact with the US regulators at this difficult time. I will be meeting with the head of the Federal Reserve Bank of New York. I will also be meeting with the President of the World Bank and other representatives of the critical regulating agencies of the US financial system.

These levels of contacts are necessary in the current environment for the simple reason that we face a series of global developments in global financial institutions which are, of themselves, significant in terms of confidence across the global economy. For our regulators and for the government to be aware of likely future actions on the part of the US regulators is of paramount importance to the continued health of Australia’s financial institutions as well. If I could conclude with this remark, it is important at times like this—

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