Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

The Labor Party will support this legislation through the House and through the other house. It is very sensible legislation and, indeed, much that goes into this legislation is the result of processes begun by the previous Labor government. We recognise the fact that this government has continued that work. This bill strengthens APRA's management powers in both preventing and responding to a financial crisis. Of course, everybody knows a financial crisis is unlikely, or is very much the exception. But it is also the case that we should make sure that our regulatory practices are best practice, up to date and maximise the chances of avoiding a crisis in the first place and responding rapidly and appropriately, should such a crisis emerge.

The bill will provide APRA with clear powers to ensure that regulated entities are better prepared for a financial stress event. It will also strengthen APRA's powers relevant to the resolution of a regulated entity in distress. APRA's existing crisis resolution powers enable it to take control of a failing bank or insurer when needed. Often, however, banks and insurers are part of a complex financial group and deal with many contractual arrangements The bill will enable APRA to take control of groups of entities so that it has the power to resolve a distressed regulated entity or group quickly and effectively.

Of course, it is just over 10 years since the onset of the global financial crisis in which our regulatory framework was tested. Indeed, it was around this time 10 years ago that the UK government nationalised Northern Rock and it was in March 2008 that the world's fifth largest investment bank, Bear Stearns, collapsed and was taken over by JPMorgan.

By 2008, of course, the Rudd Labor government had announced the introduction of a financial claims scheme, and the bank guaranteed to provide certainty and protection to Australian banking customers—a time I remember well and I know the member for Rankin remembers exceptionally well; it was a very important time for economic decision-making in our history. Only a few months later, in September 2008, the US government bailed out Fannie Mae and Freddie Mac, and Lehman Brothers filed for bankruptcy. These were indeed extraordinary times. Labor announced the guarantee scheme for large deposits and wholesale funding in October 2008 to support confidence and to assist banks, building societies and credit unions. This followed developments in international wholesale funding markets which were restricting the ability of financial institutions to access funding, with potentially serious implications for liquidity and lending activity.

So the results of the decisions taken by the Rudd Labor government at that time—by the then Prime Minister and then Treasurer, the member for Lilley—speak for themselves. These measures were significant in Australia's being one of only three advanced economies to avoid recession over that period. Perhaps most tellingly, between 2007 and 2012 Australia's increase in GDP per capita exceeded that of any other G20 nation by more than 80 per cent. Let's just think about that fact for a minute: our increase in GDP per capita exceeded that of any other G20 nation by a full 80 per cent, all as a result of these measures and other stimulus measures that the government took. Between December 2007 and March 2013 employment rose by 8.8 per cent, despite the global financial crisis. This contrasted with significantly weaker employment outcomes in other advanced economies, including net job losses in the United States, Japan, France and Italy.

Thanks to the response of the Labor government, Australia again avoided recession. The capital and skills destruction that was avoided in Australia was key to ensuring higher levels of growth in the years following the crisis. And, as we know, a recession has intergenerational impacts; it's not just the cost paid at that time. A recession has intergenerational impacts. Young people in particular are thrown onto the scrap heap of unemployment and find it very difficult to get back into the labour market. And of course it is the case that the institutional frameworks that were put in place prior to the crisis served Australia well, most particularly the prudential regulation regime overseen by APRA. This regulatory framework, which existed and still exists, of the RBA, APRA and ASIC, and their clear responsibilities, has been very important. But of course it is important to appropriately refresh our regulatory structures from time to time.

In government, Labor recognised the need to continuously engage with the financial regulators, particularly APRA and ASIC, to identify ways to strengthen further the regulatory framework that protects depositors, policyholders and other consumers of financial services. We knew that in order to keep our financial sector strong and resilient in the face of any further external shocks it was necessary to maintain vigilance. Therefore we kicked off some of the work that has led to the bill we have before us today: the 2011 consultation paper on the financial claims scheme and the 2012 consultation paper on strengthening APRA's crisis management powers, which canvassed a range of proposals that sought to address gaps in the framework, such as powers to address a distressed foreign bank in Australia, the ability to require restructuring of regulated entities to facilitate resolution and efficiencies in powers to resolve group distress. Later of course, in 2014, the Murray financial system inquiry recommended that the government complete the process for strengthening APRA's crisis management powers.

The experience of other countries during the global financial crisis demonstrated that, when complex financial groups enter distress, failure to resolve these entities in an orderly fashion can lead to severe, adverse economic consequences. The disorderly failure of a significant financial institution in Australia could of course have severe impacts on our financial system and our economy more broadly. So this bill is ensuring that APRA has effective powers to resolve a failing entity expeditiously in ways to protect the interests of depositors and policyholders and to maintain financial system stability. Accordingly, it has our support. We support the regulators.

I've made public comments recently that I'm concerned about some of the blurring of responsibilities between our regulators and that our framework has worked very well but, more latterly, some of the responsibilities between ASIC, the RBA and APRA have become more blurred. I've pointed out, for example, that it was arguable that the BEAR powers should have been given to ASIC and that macroprudential regulation has many hallmarks of monetary policy rather than prudential regulation—it's more about the macroeconomy than it is about the health of any one institution. These are matters that of course we will continue to monitor and ensure that we have appropriate responses for should we form the next government. But in the meantime we're more than happy to support this bill's passage through both houses of parliament and to see its expeditious enactment. I commend the bill to the House.

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