Australian Prudential Regulation before and after the Global Financial Crisis

60 Pages Posted: 11 Aug 2016

See all articles by Peter Docherty

Peter Docherty

University of Technology Sydney (UTS) - UTS Business School

Ron Bird

University of Technology Sydney (UTS)

Timo Henckel

Australian National University (Centre for Applied Macroeconomic Analysis)

Gordon Douglas Menzies

University of Technology Sydney (UTS) - School of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 7, 2016

Abstract

This paper reviews the nature of Australian bank prudential regulation before and after the Global Financial Crisis (GFC). It provides a detailed conceptual framework for understanding the functions of banks and deposit-takers, the theory of what can go wrong with the operation of these institutions, and the logic of prudential regulation. It traces developments in Australian prudential regulation from the introduction of the formal capital-based framework in the 1980s to the implementation of the Basel III regime after the GFC. The paper concludes that i) the introduction of the Financial Claims Scheme was a clear and welcome change compared with pre-GFC arrangements; ii) the introduction of the Basel III liquidity regime constituted a more fundamental modification, best characterised as a significant refinement to the riskbased calculation of capital than as a fundamental change to regulatory philosophy; iii) the Australian Prudential Regulation Authority (APRA) had been practising macroprudential regulation well before the GFC even though Australia’s adoption of Basel III’s macroprudential apparatus appears on the surface to constitute a genuine innovation in prudential regulation; and iv) the importance of financial stability as a policy objective and the nature of macroprudential regulation raise questions about the wisdom of having split monetary policy and prudential regulation functions in 1998, and a revisit of this question and a reassessment of institutional structures are called for.

Keywords: Banking, Financial Crises, Prudential Regulation, Macroprudential Supervision

JEL Classification: G21, G28

Suggested Citation

Docherty, Peter and Bird, Ron and Henckel, Timo and Menzies, Gordon Douglas, Australian Prudential Regulation before and after the Global Financial Crisis (August 7, 2016). CAMA Working Paper No. 49/2016 . Available at SSRN: https://ssrn.com/abstract=2819819 or http://dx.doi.org/10.2139/ssrn.2819819

Peter Docherty

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

Ron Bird

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
Ultimo, New South Wales 5000
Australia

Timo Henckel (Contact Author)

Australian National University (Centre for Applied Macroeconomic Analysis) ( email )

Canberra ACT 0200
Australia
+61-2-61255540 (Phone)
+61-2-61255570 (Fax)

HOME PAGE: http://apseg.anu.edu.au/staff/thenckel.php

Gordon Douglas Menzies

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia

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