Andrew Bragg (NSW, Liberal Party) Share this | Hansard source

I rise to address this bill, the Banking Amendment (Deposits) Bill 2020, as well. In doing so, I think it's always good to reflect upon what my good friend Mr Paul Keating has said when he has said that banking is the artery of the economy. It is very important that we get banking and financial sector policy right, because, ultimately, the flow of capital and credit into Australian businesses is something which underpins our prosperity.

Of course you can't have a fair society unless you have an economy upon which to build it. Over the long run of history, our contribution to banking and financial sector policy on this side of the chamber is absolutely assured. The Menzies government established the Reserve Bank. This Banking Act we're referring to today was an act of the Menzies government. And, in the years beyond the Menzies period, there were the financial system inquiries that led to, in a large degree, the modern banking and financial sector architecture in Australia. They started with the Campbell inquiry, commissioned by John Howard and Malcolm Fraser. A lot of the recommendations from that inquiry, to be fair, were implemented by the Hawke government, to their great historical credit. The entry of foreign banks and the like ensured that there was more competition in the eighties, and then, fast forwarding into the nineties, there was the Wallis inquiry. The Wallis inquiry, which was commissioned by Peter Costello and John Howard, looked at the standing of the financial sector in the mid-nineties. It recommended the creation of APRA and ASIC to form the twin-peaks regulatory framework that you now see in Australia.

We had the financial crisis in 2008-09, and that was effectively a stress test for our banks and our financial sector. I have to say, just as we have seen in this coronavirus recession, that Australia's institutions held up very well. That is partly because of the twin peaks authority, or the breakdown of responsibilities between a conduct regulator and a prudential regulator. It is also that APRA was established as a standalone prudential regulator, a regulator that was to focus on risk and focus on governance. Also, as my colleague Senator Brockman mentioned, it is a regulator which really has two key objectives. One objective is to assure financial stability; the other objective is to protect depositors and policyholders. That really takes us to the core of this bill today and reminds us again of what APRA is there to do every day as the prudential regulator.

APRA administers the Financial Claims Scheme, and we all recall the way that the Financial Claims Scheme was legislated by the Rudd government. It was, for a time, the Rudd government's policy that there would be an unlimited bank guarantee. That caused enormous concern in financial markets and led to the freezing of non-bank investments virtually overnight, because you had a panicked response from an inexperienced person who claimed to be providing the world's biggest deposit guarantee—unlimited. That was then scaled back to $1 million, because the huge financial disruption that had caused to cash management trusts and cash-like investments was known. Ultimately, the Financial Claims Scheme has been scaled to a quarter of a million dollars, and that is limited to an institution. The Financial Claims Scheme exists in case there is a major dislocation and a failure or a partial failure of an ADI or a bank. There is a very important seal that can be used by ADIs, which allows them to assure Australians that their money is secure.

I don't doubt the sincerity of Senator Roberts and others who have brought forward this bill today. They have said that there is a genuine concern in the Australian community about whether or not people's money is safe. I understand that, and one thing that I think we can do better in the future is ensure that people are aware that we have the Financial Claims Scheme to protect people's money. The seal, which can be used by banks, probably should be more widely used. Currently, this is not compulsory; a bank doesn't have to use a seal, because it is voluntary. But, if people saw that their bank had the Commonwealth coat of arms on the seal, they would perhaps have more confidence that their deposits would not be affected should there be a major financial dislocation and a failure of financial institutions.

As I said, the financial crisis was a stress test for our institutions, and none of our major financial institutions failed. Yes, there was a retail deposit guarantee, which, as I said, was shambolically announced by the Rudd government as an unlimited guarantee but ultimately landed at $250,000. There was also a wholesale funding guarantee, which I guess provided more money for banks that were struggling to secure credit on the wholesale funding markets. But the financial crisis tested these institutions and they stood up pretty well, and during the COVID crisis we've seen a similar pattern being repeated. On one side you've got depositor protection, which is part of APRA's mandate and comes to life through the Financial Claims Scheme, and on the other side you've got financial stability and APRA deploying capital adequacy requirements. APRA said in March this year:

Over the past decade, the Australian banking system has built up substantial capital buffers. The highest quality form of capital, Common Equity Tier 1 … reached $235 billion at the end of 2019. As a result, banks are typically maintaining capital levels well above minimum regulatory requirements.

For the four majors, APRA said that you've got a common equity tier ratio of more than 10½ per cent of risk weighed assets, which is, by global standards, quite a high level of capital. As I said, on one side you've got the claims scheme and on the other side you've got very strong capital adequacy requirements for banks. Of course, I should reflect on APRA. I think APRA has been a good banking regulator. The fact that it has presided over multiple crises in the finance sector without a banking calamity, in the form of a run on the banks or a major dent, is a good thing.

There was, of course, a royal commission into the banks a couple of years ago. That profiled, for anyone to see, the foul and disgusting behaviour, particularly in the wealth management sector where we repeatedly saw super funds putting the interests of shareholders ahead of the interests of their members. A large part of the government's plan to adopt the Hayne royal commission recommendations really does go to tidying up a lot of the cowboy behaviour that we saw in that wealth management sector.