Parliamentary Report AUSTRALIA Government acts on financial threats
GOVERNMENT RESPONDS TO GLOBAL FINANCIAL CRISIS
During September 2008 insta- bility in global financial mar- kets arising from the flow on effects of the U.S. sub-prime mortgage crisis became more severe. The Australian govern- ment responded with the introduction of a financial sta- bility package designed to shore up confidence in finan- cial markets and the banking sector. The Treasurer,Hon.Wayne
Swan, MP, commented that “in recent weeks the global financial crisis has entered a new and dangerous phase, with inevitable consequences for the Australian economy”. Mr Swan noted that during the past 12 months,“we have wit- nessed the unfolding of signifi- cant dislocation in global finan- cial markets which had its beginnings in the U.S. sub- prime mortgage market. This has led to unprecedented actions being taken by central banks and governments around the world”. He reported that a constant theme of his discussions at the IMF and the G20 was the need for early and decisive action by governments. In particular, “Ministers noted the impor- tance of countries moving in a coordinated fashion, so as to avoid being negatively impact- ed by the response of others”. As a result, a number of gov- ernments have moved to strengthen their banking sys- tems and protect depositors including Australia. Mr Swan noted that Aus-
tralia’s banking system was sound and well regulated. He commented that “no deposi- tor of an institution super- vised by the Australian Pru- dential Regulation Authority (APRA), or before that the reserve bank, has ever lost any money”. Notwithstanding this
enviable record, he stated that “confidence is fragile following the failures of a number of large international institutions and has caused significant falls in global equity markets and elevated spreads in interna- tional and domestic funding markets”. In view of this growing glob- al instability, the “government has therefore announced
Hon.Wayne Swan offered by Authorised
Deposit-Taking Institutions (ADIs) and general insurance products offered by Australian Prudential Regulation Authori- ty (APRA) regulated insurers in the event of an institutional failure. Mr Swan commented that “it will ensure that depos- itors and beneficiaries under an insurance contract have access to funds in a timely manner following the failure”. He noted that “in addition to the guarantee on deposits, the government will also guarantee eligible wholesale borrowing of Australian banks, building soci- eties and credit unions and Aus- tralian subsidiaries of foreign- owned banks”. In the event an institution
unprecedented action to deal with developments in global markets to ensure stability for Australia’s financial system, to maintain our institutions’ abili- ty to attract new funds for investment in the Australian economy, and to enhance and strengthen Australia’s regula- tory framework for managing financial institutions in distress”.
The package of legislation
introduced to the House on 15 October and assented to on 17 October implements the government’s stability package. In particular, the package “legislates for the gov- ernment’s guarantee of deposits in Australian banks, building societies and credit unions and Australian sub- sidiaries of foreign-owned banks”.The package will oper- ate for a period of three years. The government will examine a cap on the guarantee after three years.
The Financial Claims Scheme (FCS) covers deposits
370 The Parliamentarian 2008/Issue Four
fails, the scheme “will provide depositors in ADIs with timely access to their funds and ensure that eligible general insurance policyholders have their claims met”. In relation to funding and recovery of payments, the legislation pro- vides appropriations for the FCS to cover the full guaran- tee.APRA will recover monies through the liquidation of the failed institution, with APRA to stand in place of those depos- itors and policyholders assist- ed by the scheme. Mr Swan noted that “in the unlikely event that recovery of all
on remaining ADIs or remain- ing general insurers”.
The leader of the opposi-
tion, Hon. Malcolm Turn- bull,MP, noted that on 2 June 2008 the Treasurer announced that the government would legislate for a scheme which would enable depositors in a failed bank to receive within weeks a refund of deposit with that institution up to a limit of $20,000.On 10 October prior to the government’s announcement of the FCS, “the Shadow Treasurer and I recommended that it should be increased to at least $100,000”. Mr Turnbull stated that the new legislation “pro- vides for an unlimited deposit guarantee and we fully support it”. Mr Turnbull cautioned that a scheme of this size does introduce potential additional moral hazard which cannot be ignored. He said “we recognize that the scheme may have unin- tended consequences, and we will carefully monitor the effects of the scheme and liaise with the government where it is feasible to resolve those unintended consequences”.
ELECTION OF NEW PRESIDENT OF THE SENATE On 26 August, new Senators – whose terms began on 1 July – were sworn in.The election of the President and Deputy President saw the convention maintained that the President is elected from the party hold- ing government and the Deputy President from the largest non-government party. The previous President, Sen. the Hon. Alan Ferguson was elected Deputy President and Sen. the Hon. John Hogg was elected the 23rd President.
monies was not possible, the legislation provides a mecha- nism for a levy to be imposed
Senator Hogg was Deputy
President of the Senate from August 2002 until his election