SUBJECTS: Financial Crisis, deposit guarantee, APRA funding
ALI MOORE:
Chris Bowen is the Assistant Treasurer, Chris Bowen good morning.
CHRIS BOWEN:
Good morning Ali.
ALI MOORE:
Australian Unity for one, made it very clear, that becoming a bank is not the answer. Two points; one how do they raise their capital, and how do they raise the capital quickly? And two, under normal circumstances, it can take up to 12 months to get a bank licence. If you have got many applications, even if you have extra resources, it would take even longer.
CHRIS BOWEN:
Ali, what we are seeing around the world and in Australia is a flight to certainty. A flight to stability. People are seeking more certain investments and even before the Government put its guarantee on bank deposits, 50% of these funds had frozen their redemptions because they were getting increased withdrawals, because of this flight to certainty.
So, what this measure is about, as one of the measures the Government has taken, to try and introduce more certainty and stability into the market.
ALI MOORE:
But nobody takes it up.
CHRIS BOWEN:
What it is about is saying to these funds, and a number have said to us over recent days:'we think we can meet the APRA requirements, we think that if you get APRA to regulate us we'll be fine, and we would like to actively pursue this'.
So we want to help them facilitate that. In the normal course of events, APRA receives very few applications to be regulated by them. They might receive a very small number a year, and so the resources are not geared to help facilitate these funds convert to be APRA regulated.
This announcement is about giving APRA the resources to do it rigorously but as expeditiously as they possibly can to try and get some of that certainty back into this particular segment of the market; as we have provided to the banks by a decisive action, to now extend that to these funds who seek to have the protection of the deposit guarantee. They need to get APRA regulation to do that.
We can't guarantee organisations which aren't regulated by the Government and by APRA.
ALI MOORE:
I suppose the point from Australian Unity, which has over $1 billion frozen, the point they were also making is that, well two; one is that already APRA regulated entities actually invest in their fund - so how much difference is a regulator going to make?
And secondly, rather than all become banks, why not just put tighter regulation on these investment funds. Why go through the whole process of turning everyone into a bank - I mean do you need to be a bank to operate in this market?
CHRIS BOWEN:
It is not actually turning them into a bank; it is turning it into an APRA regulated institution. So it's...
ALI MOORE:
But that makes you a deposit taking institution, because that's what APRA regulates.
CHRIS BOWEN:
That's right, but what it does is to say'we cannot guarantee organisations that aren't regulated by APRA, it's would be irresponsible for us to say we don't have any regulation via our regulator APRA on these organisations, and we are going to guarantee all of them'.
Now, the vast majority of these are well capitalised, well run funds, and there is no need for concern, but understandably people are seeking more certainty.
So one way of doing this, is to extend the protection of APRA regulation to them.
Now as I say, every fund will be different, every fund will have a different approach, some will need to think about this in great detail, some it won't apply to, some have indicated to us that they are very happy to pursue it.
So this is one of the measures we have taken to try and extend some more certainty to this particular sector of the market.
ALI MOORE:
Chris Bowen, was Kevin Rudd, whether deliberately or not, really bagging the reputation of these investment funds? If you read what he said, he says'no Government can in good conscience put taxpayers dollars at risk to support financial institutions which are not open, transparent and properly accountable to Australian regulators'.
Is he implying that the Australian Unity's, the Perpetual's, the Challenger's are not open, not transparent and not accountable to regulators?
CHRIS BOWEN:
No, not at all. He's making the same point that I am. That when you have a Government guarantee, a taxpayer guarantee, you need to ensure that there are adequate protections are in place. Now as I say and I stress...
ALI MOORE:
I take that point, but wouldn't you also argue that under the regulatory system in this country, the likes of Australian Unity and the other companies, AXA for example, are accountable to the relevant regulators?
CHRIS BOWEN:
Well, they are not accountable to the regulator that insures capital adequacy, to reassure us as the government that our guarantee is well placed.
As I say, the vast majority of these funds are fine, but we can't extend a blanket guarantee to every fund in the country without knowing that they have the capital adequacy required to ensure that guarantee is sound.
And that's the only prudent and responsible thing for us to do in this particular instance.
ALI MOORE:
That's one solution, if it doesn't work, if they are not all prepared to come under the APRA rule, or it doesn't prove to be tenable in the short term, are there are other solutions in the offing?
CHRIS BOWEN:
Well, look Ali, we will continue to talk to them, to talk to the regulators, and to respond.
Now this situation, around the world and in Australia, has hourly developments - not daily developments but hourly developments. And it is incumbent on us, and on the regulators, and on the funds themselves to respond as flexibly as we can within the parameters we have set out. We will continue to do that.
We will continue to talk to them about this measure, about other measures that they think might be helpful, and we will continue to do what we can to extend that certainty to them.
ALI MOORE:
Can I ask you another question, Chris Bowen, is it right, as it was reported quoting sources out of the Prime Minister's office that Kevin Rudd was asked by the US President George Bush 'What is the G20?'
CHRIS BOWEN:
Look, I don't know what happened on that phone call. Obviously, I wasn't listening in. But I will say this; this is a good thing for Australia that the G20 will be the forum. This is something that the Prime Minister has been pushing very strongly...
ALI MOORE:
But this all a bit embarrassing, isn't it? I mean, you've got that claim, and then you've got the Washington Post quoting a US official from Bush's office saying categorically, that's not what happened.
CHRIS BOWEN:
The important thing is that there was a phone call between the Prime Minister and the President. The Prime Minister suggested to the President that the G20 is the appropriate forum. He gave instructions to all Government ministers to press that as hard as we can.
When I was in Europe I was pressing that with the European ministers, we have all pressed it as the Treasurer has done, in his phone calls with his colleagues overseas. We have all been pressing it and that has been successful.
The Prime Minister has made the point, if you are going to have a global solution, you need to have the world's biggest economies, and by that we mean China, India, Brazil, Indonesia as well as Australia at the table, because Australia has something to offer.
We have the twin peaks model, well-respected regulation, which is seeing us through this crisis better than any other comparable country in the world and we have something to bring to the table. And the Prime Minister has been successful in arguing that and that's what we're pleased about.
ALI MOORE:
Chris Bowen, just a text message here, and I can't answer it completely - what does APRA stand for? The Australian...
CHRIS BOWEN:
The Australian Prudential Regulation Authority
ALI MOORE:
There you go. Chris Bowen, thank you.
CHRIS BOWEN:
Pleasure, as always.