"Australia's financial services sector was the unsung hero of the country's resilience during the GFC and the years that followed. Discuss, with careful reference to policy decisions that shaped the sector." Courageous, noble, outstanding achievement, this is how a hero is defined by the Oxford dictionary. To say Australia’s financial services sector exuded these qualities throughout the GFC may be a long bow to draw. Alternatively you could also look at the Hollywood definition of a hero, overcoming adversity, danger and peril to walk away from the smoldering remains largely unscathed and victorious. If the GFC is the smoldering remains then Australia’s financial services sector is the hero. No bailouts were required and no depositors or creditors lost money (Macfarlane, 2014). I however, believe that some of the policy decisions undertaken over the decades by both sides of Australian government were indeed courageous and noble, and it was these decisions that lead to the outstanding achievement of the financial services sector through the turbulent GFC years.
To look for the origin of resilience that embodies Australia’s financial services sector, our eyes must be cast back several decades to the Hawke-Keating governments’ implementation of the majority of the recommendations from the Campbell Committee’s findings in 1981. It was then the Howard government in 1996 that established the Wallis Inquiry whose recommendations and subsequent implementation further strengthened the financial services sector. Lastly, as the GFC approached and touched down it was the Rudd government’s fiscal policy decisions that shaped and influenced the Australian economic environment. Campbell
In first looking at The Campbell Committee, this inquiry looked into the performance constraints that regulation was having on the Australian financial system and recommended changes to promote increased efficiencies and stability (Campbell, 1981). The findings were presented in 1981 and in total 260 recommendations with respect to the financial sector were made (Thesis). Whilst many of these recommendations upon implementation had impacts on the financial services sector during the GFC, there are several key recommendations that shaped the economic landscape and profoundly impacted upon future monetary and fiscal policy. These key recommendations include; Removal of regulations imposing direct controls on interest rates and portfolio composition, higher prudential standards, allowing the entry of foreign banks to the Australian market, amendment to the banking act in 1989 to allow the introduction of prudential requirements by regulation and the floating of the Australian dollar (Campbell, 1981). In implementing these recommendations governments increased the ability of natural market forces to shape financial markets all whilst under appropriate levels of regulatory supervision (Chapter 14). Float
The floating of the Australian dollar in 1983 was one of the most significant economic reforms ever undertaken in Australia (Kennedy, 2009). In doing so the scene was set for the Reserve Bank of Australia (RBA) to implement modern monetary policy allowing it to pursue a medium-term target for inflation and short-term to affect cyclical changes in economic activity (Stevens, 2009). The independence of the RBA ensures its ability to act swiftly in the implementation of monetary policy, which proved to be vital during the GFC in promoting domestic price stability and growth (RBA Statement). Foreign Bank Entry
In opening the doors and allowing the entry of foreign banks into the Australian market, greater competition was introduced to the sector. Similarly to other economic sectors, free flowing and effective competition brings about numerous advantages. Customers have increased supply of financial products, innovation propagates through the sector, prices decrease and financial institutions increase their competitiveness (OECD,...
References: Kennedy, S. 2009, ‘Australia’s response to the global financial crisis’. Speech to the Australia Israel Leadership Forum. 24 June.
The Wallis Report on the Australian Financial System: Summary and Critique 2007.
Gizycki, Marianne and Philip Lowe, 2000, “The Australian Financial System in the 1990s” Reserve Bank of Australia conference on The Australian Economy in the 1990s.
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