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Monday, 22 September 2008
Page: 8063

Ms GRIERSON (2:07 PM) —My question is to the Prime Minister. Will the Prime Minister update the House on the government’s response to the current turmoil in international financial markets?

Mr RUDD (Prime Minister) —I thank the honourable member for her question. The global financial crisis is having a significant impact on the real economy worldwide, not just on global financial markets. The Australian government has a strong set of policy measures in place to see Australia through these difficult financial times. They begin with the budget surplus, to which I just referred to in my answer to the previous question, but they are also anchored in the strength of this government and this country’s national financial regulatory institutions and in the extent of the collaboration between Australian financial regulatory institutions and those which exist abroad.

Over the weekend the United States authorities proposed a significant initiative to address the financial crisis. Their plan would give the authority to the United States Treasury department to buy up to US$700 billion—that is US$700 billion—in mortgage related assets from financial institutions. The US Treasury secretary, Hank Paulson, said on Sunday:

This is not something that we wanted to do. This was something that was … necessary.

This is a significant action on the part of the United States, and it is a welcome effort to put a floor under the problem by the US authorities. The program intends to fundamentally address the root cause of the financial system stresses in the United States by removing distressed assets from the financial system. Markets thus far, based on early reports of this impending US action, have responded positively in the United States and elsewhere.

Members will also recall that on Wednesday last week the US Securities and Exchange Commission tightened restrictions on short selling. Australia followed this move on Friday by working through our regulator, ASIC, to place a temporary ban on naked short selling. On Friday night the USSEC took further action to temporarily ban all short sales of nearly 800 financial stocks. The announcement followed a similar move by financial regulators in the United Kingdom. As a consequence, and in response, ASIC announced yesterday they would impose a 30-day ban on short selling of all stocks. The government endorsed the coordinated response, which accords with similar action by the US and UK financial regulatory authorities.

While appropriately regulated and disclosed short selling has a role to play in the effective operation of markets, it is appropriate to curtail its use at a time of heightened market volatility—and that is precisely what we have at present around the world. We are acting to help prevent market manipulators from artificially driving down stock prices. We cannot afford for that to happen in a time of unprecedented global financial instability as we have seen most recently on markets. In addition, the Commonwealth government will introduce legislation to improve the long-term disclosure requirements around short selling.

As I indicated earlier to the House, Australia, while not being immune from the problems in the United States, nonetheless is better placed than most economies to weather the current storm. The Australian Prudential Regulation Authority has advised the government that Australian deposit-taking and insurance companies supervised by APRA are well capitalised, profitable, well regulated, and they are weathering the turmoil well.

The government has also been active on a range of other regulatory fronts and also through the Reserve Bank. The Reserve Bank has enhanced liquidity in the market to compensate for an increased demand for liquidity. The RBA has been expanding its money market operations during periods of particular stress, including in the overnight money markets. For example, over the past week, aggregate exchange settlement balances have lifted from $1.5 billion to close to $7 billion in the overnight money markets. This follows additional liquidity injections by the Reserve Bank into markets both in March and June of this year.

In a further measure, the RBA also widened access to its repurchase agreement facilities by enabling financial institutions to use a much wider class of assets as collateral for such agreements. Again, this is designed to enhance liquidity. The RBA has been undertaking moves in this respect during the course of the financial crisis over the course of 2008. Furthermore, as a government we have, in partnership with the economic regulators, taken further steps to support liquidity in the government bond market to ensure our broader financial markets operate more effectively. We provided legislative authority for an increase in future Commonwealth government securities of some $25 billion, with an authorisation of $5 billion worth of further issuance in 2008-09.

In a further measure of direct relevance to households, the Financial Stability Forum, in which Australia has been active, recommended in April of this year that authorities review and, where necessary, strengthen deposit insurance arrangements. For us that has meant taking action on the financial claims scheme—a financial claims scheme which would provide better protection for consumers in any uncertainties which would lie ahead.

Internationally, Australia remains active with the Financial Stability Forum because we must act not just nationally but in absolute concert with regulators in the United States and elsewhere. That is why, through our financial authorities—APRA, ASIC, the RBA and Treasury—we have been working in all five areas of global collaboration with the FSF on strengthening prudential oversight of capital, enhancing transparency in valuation, changing the roles and uses of credit ratings, strengthening the authorities’ responsiveness to risks and implementing robust arrangements for dealing with stress in the financial system.

These are practical measures which the government, together with the financial regulatory authorities in Australia, have been taking in response to this crisis. It is important to continue to stress the absolute strength of Australia’s regulators, the fact that our regulators are among the best in the world and that the government, in concert with the regulators, have been acting throughout the course of this crisis and throughout the course of 2008 in response to what is a global problem now confronting all economies.