Trish Crossin (NT, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Superannuation and Corporate Law, Senator Sherry. Can the minister update the Senate on how the US financial crisis is affecting other financial international markets, including the UK, and what actions we are taking here in Australia to deal with this?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Unfortunately, there is an almost daily update of serious new developments in the international financial markets as a result of the US financial crisis—the subprime crisis, which I have referred to often in this chamber. It is often said that we live in a global economy, and nowhere is it clearer that we live in a global economy than when it comes to financial markets. National sovereignty or not, the impacts of what has occurred in the US are spreading far and wide across the globe. The contagion that is occurring is a new worry about levels of debt, particularly undisclosed debt, the valuation of debt and fear of possible exposure to toxic US subprime mortgages. This is causing havoc in many countries around the world.

The unfortunate latest developments occurred in the United Kingdom. Overnight we have learnt that British firm Lloyds TSB is close to finalising terms for a takeover of what is known as the Halifax Bank of Scotland or, more commonly, HBOS. Reports indicate that the British Prime Minister, Mr Gordon Brown, has had to personally intervene to see Britain’s biggest savings bank rescued from financial difficulty. It is reported that Lloyds TSB will acquire HBOS for approximately £12 billion—that is approximately A$27 billion—to create a lender that would control more than a quarter of the UK mortgage market. The UK government is not directly involved but is supportive of the deal.

The stories follow Tuesday’s downgrade of the credit ratings of HBOS to A+ from AA- by Standard and Poor’s. After the downgrade, markets have become concerned about HBOS’s ability to fund itself. HBOS owns other financial institutions, including Halifax, Bank of Scotland and Birmingham Midshires. The takeover value that is proposed is less than one-quarter of the value of HBOS some 18 months ago. HBOS owns BankWest, in Australia. APRA is closely monitoring as, indeed, it is closely monitoring the liquidity of all Australian financial institutions within its jurisdiction. including the liquidity of BankWest—HBOS’s Australian subsidiary—and HBOS itself. APRA is also in daily contact with the UK Financial Services Authority. There is no suggestion—and I emphasise this—that BankWest is experiencing any difficulties. I repeat my previous advice to senators: Australian banks are well capitalised, well regulated and do not have the same problems as banks in the United States.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Macquarie?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

You should be very careful about your interjections, Senator McGauran. The Treasurer and I have been briefed by the Treasury and are in close communication with the Reserve Bank and APRA. The government is closely monitoring and is in constant contact with the regulators on these issues. Of course, the Australian economy and financial markets are not immune from these global developments. What we have learnt with respect to regulation of financial services generally is the need for single national standard regulation of financial services to maximise integrity and safety in respect of prudential regulations and supervision of financial markets. I can inform the Senate that the Australian government has acted decisively in this way. We have reached agreement with the states to transfer all of the remaining regulatory and supervision of a wide range of financial products and the delivery of those products into a single national regulatory system. (Time expired)