21 January 2010

Interview with CNBC Squawk Asia (Hong Kong)

SUBJECTS: Global financial crisis, Australia's financial and prudential regulation, APRA, ASIC, Reserve Bank, trade, unemployment.

HOST:

Minister, let me get to you first of all in Hong Kong. Considering that Australia, comparatively speaking, weathered the financial crisis pretty well and the Australian banks also came out of it well compared to some of their peers in other countries, do you think that Australia needs more or less financial regulation?

CHRIS BOWEN:

Well, these are always a matter of balance and in Australia, as you say, we have withstood the global financial crisis in a very robust way. We haven't had any runs on any regulated financial institutions and four out of the nine AA-rated banks around the world are Australian banks, so we do take the view that our regulatory systems worked well and that there is not a case for wholesale reform.

Of course, we're working with our colleagues in the G20 on matters of financial and prudential regulation and APRA, our prudential regulator, is going through the process of reviewing our liquidity requirements. We're doing that in consultation with the financial services sector, and as we implement those discussions through the G20, of course we'll be doing so with a very clear eye and mind on Australian circumstances and implementing those in a way which reflects the way Australia has been dealing with the global financial crisis.

JOURNALIST:

Minister, if I could ask you a question … In Western Europe, people are very worried about regulatory overkill at the moment, but also many people, including myself, say we need to learn lessons from the countries that actually did well in the crisis. What's the one lesson that you think Australia should actually be taking to the rest of the world? Is it high capital requirements, or is it something else?

BOWEN:

Well, of course, we're not in the business of lecturing our international colleagues and regulatory frameworks always need to be implemented with a mind to local circumstances. But what I'd say is this: what we've found works in Australia is a matter of structure. We have the twin peaks model of regulation; that means we have APRA as the prudential regulator and ASIC as the corporate regulator. And that's been the situation in Australia for some time, and we've found that that works well because you have two organisations each focused on their core business.

When you have a monolith of a regulator, you have the potential for prudential to overshadow corporate regulation or vice versa in terms of priorities. Or if you have too many regulators, of course you have the danger of things falling through the cracks and regulators not being able to pick up complex instruments, and people thinking that another regulator is looking at something else and things falling through the cracks.

We find the right balance in Australia, for us, is the twin peaks model – two regulators – and of course, we have the Reserve Bank responsible for financial system stability across the board. That's what's worked well in Australia. We also found we had strong prudential regulation, a very active prudential regulator, arising out of our 2001 loss of one of our insurance companies, where our regulator responded and really improved the way it undertakes prudential regulation and was really proactive, but in a way which instils confidence in our financial services sector – not heavy handed, not overbearing – but in a way which can instil confidence. And that's the right balance that we find works for us.

JOURNALIST:

Minister, the ripple effect that happens throughout the global economy whenever there are problems – the United States certainly is accused of leading the global economy into almost the abyss – I'm wondering, despite the fact that Australia has come through this quite well, what were the ripple effects that really impacted Australia from what happened in Europe, what happened in the United States? Can you give us some thoughts on that?

BOWEN:

Well, there's no doubt there has been an effect on Australia. While we've gotten through comparatively well, there's been significant effects on Australia. Eight of out top 10 trading partners have been in recession. Our terms of trade have fallen substantially, but nevertheless, through a range of responses – our Reserve Bank monetary response, our fiscal response, which was swift, we had a temporary and targeted stimulus which was significant – we found that we've gotten through, as I say, without the loss of a financial institution, no runs on our financial institutions. And in the real economy, our unemployment rate being quite robust, at 5.5 per cent, and only one negative quarter of growth so we haven't got any technical recession.

But that's not to say that we weren't at any stage in danger because of the global financial crisis. Of course it's had an effect, but we have been getting through in a way which we're pleased with compared to a lot of other nations.

HOST:

It's been a pleasure to have you on the show. Thank you very much for joining us today, Chris Bowen, Minister for Financial Services of Australia.