House debates

Monday, 4 November 2024

Private Members' Business

Banking and Financial Services

7:05 pm

Photo of Daniel MulinoDaniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

At the start of this contribution, I think it's worth taking a step back and asking why we have prudential regulation. Essentially we have prudential regulation for two main reasons. One is to ensure that financial institutions are operated in a way that is prudent and safe and that those institutions have good governance and appropriate capital holdings. That is of great importance to our community. But the second reason is of even greater importance to our community. There's prudential regulation of our banks so that there is stability of the overall financial system. Prudential regulation requires that banks hold sufficient capital, that banks have suitable governance and that banks undertake appropriate scenario planning. That's because we don't want large organisations being run in such a way that they're at risk.

The second aspect, and this is critical to regulation of the financial sector, is that there are systemic risks because banks are interconnected in the way that they operate, because banks, as part of the financial services sector, are interconnected with all other parts of our economy and because banks are so large. So it's absolutely critical for our community that our financial system has a degree of stability. If there was systemic risk in our financial system and if things were not regulated in an appropriate way, we would see things like the GFC bear their ugly heads more often. So APRA's role is absolutely critical, and I think that piece of context is really important.

What are the kinds of rules that we talk about in this situation? As I alluded to, the rules in the prudential regulatory space are largely around banks holding sufficient capital, appropriate governance and scenario planning, appropriate stress testing and modelling of risks. The importance of Australia's well-managed prudential setting is borne out in many instances. Most recently we saw, for example, the collapse of the Silicon Valley Bank, the carnage of all the devastated businesses left in its wake and the spectre of systemic risk in the US and European systems. We were spared from that. That's just one of a number of examples of the importance of solid prudential regulation by APRA. Key to this is not just that APRA undertakes sound regulation in relation to capital holdings and in relation to stress testing but also that it's independent. This independence of APRA has been instrumental in its success over a long period of time.

Other speakers on this motion have pointed to the fact that we need to be cognisant of the importance of small banks and customer owned banks in our system, and I agree with that. In the competition inquiry that I chaired, undertaken by the House Economics Committee, we looked at the important role of small banks and of customer owned banks. We need to have competitive pressure in our system. That is vitally important. But there are balancing acts here that a prudential regulator must undertake. That's why, in addition to bearing in mind the importance of the role that customer owned banks and small banks play, as alluded to in this motion, it is critically important that the prudential regulator has an eye on that systemic risk and the good management of our large banks.

The analysis that was undertaken by APRA in relation to some of the non-big-four banks was undertaken in a targeted way. It was undertaken with strong levels of engagement and in the way that you would expect of an independent, robust, rigorous regulator. The motion alludes to the fact that some of the regulation was unnecessary, but I would simply make the point that it is critical that we have fit-for-purpose regulation which balances a number of interests. Critical amongst those is the systemic stability of our system.

I would also make the point that this government, in addition to supporting the ongoing role of APRA, which is reflected in the analysis that it has undertaken in relation to the non-big-four banks, has undertaken significant reforms to reduce the amount of red tape and overlap in our regulatory system—for example, with the regulatory grid initiative, which was something that came up on many occasions in the competition inquiry that the House Standing Committee on Economics undertook. It was something which was supported by the small banks, the medium-sized banks and the customer owned banks. It was also supported by the big four banks, mind you. It was supported by the fintech sector, it was supported by insurers—right across the financial services sector. This government has taken action on that. Let's look at what this government has actually done compared to the 10 years of inaction before that.

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