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Wednesday, 15 October 2008
Page: 9247


Mr PEARCE (6:26 PM) —Madam Deputy Speaker, on indulgence, can I just start by welcoming my family to the gallery this evening. It is wonderful to see them here. The Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Bill 2008 and cognate bills are important. After all, it has been the Leader of the Opposition who has shown real leadership on these matters, after demanding that the government provide a broad deposit guarantee and shore up Australia’s banks by underwriting wholesale bank funding. So we are pleased that the government now agree with us and have introduced these bills. Mind you, I do have to say that it did take some time for the government to come on side with our recommendations, and it is good to see them finally adopt the Leader of the Opposition’s proposal.

There are three broad objectives of the bills before the House: the guarantee of all deposits offered by ADIs, or authorised deposit-taking institutions; a general insurance guarantee protecting policyholders; and an expansion of the powers of the Australian Prudential Regulation Authority in relation to general insurance. Before the election, the government wanted to disband APRA and merge it with the Australian Securities and Investments Commission. I am sure now, with the benefit of hindsight, that the government is very glad that it did not decide to interrupt the regulatory, business and prudential framework of Australia. APRA, of course, would not even exist if it were not for the coalition establishing it following the Wallace inquiry in 1998. I am sure, Madam Deputy Speaker, that, like me, you could not even begin to imagine the train wreck that would be Australia’s financial service industry today without that essential regulatory role that APRA has performed over the years. The guarantee of wholesale borrowing that is a part of this package has not been presented at this stage. We understand that is awaiting some further advice from the Attorney-General’s Department.

To the first area, the guarantee of ADIs: this is a new element of the ADI deposit guarantee. We already have an early access facility for depositors where depositors in a failed ADI are granted timely access. If an ADI fails at the moment, the process prioritises the deposit of funds above other claims during the liquidation process. However, there are no provisions for the timely release of depositors’ funds. So what this measure will do is allow APRA to speedily dispense deposited funds to customers of ADIs through Reserve Bank of Australia issued cheques or APRA established bank accounts with another ADI. Once the payments are made, APRA will be able to recoup funds expended by way of, I guess, standing in the shoes of the failed ADI through the liquidation process. A levy to retire costs incurred by APRA where the costs are not recoupable may be established. These provisions are subject to review in three years from now and, in the interim, any public ambiguity about the banking system should now be eradicated. Wholesale and retail customers will be covered, provided their institution is an ADI, so we welcome the fact that the government has now adopted our position on banking guarantees.

The next major area is the general insurance guarantee. If a general insurance provider fails, compensation equivalent to the policyholder’s entitlement will be paid. So, as with a banking failure, APRA will step into the insurer’s shoes and dispense legitimate general insurance claim payments. Claims can be existing or arising in the future up to a limit of 28 days post the institution’s failure. Eligibility criteria will be imposed in order to assess the legitimacy of claims, and all claims valued $5,000 or less will be automatically paid. As with banking failures, APRA may establish a levy in order to recoup the irretrievable costs.

The other area in these bills, of course, is the expanded APRA powers. APRA will be able to apply to the court to appoint a judicial manager for a distressed general insurer, whose duty is to protect policyholders. APRA’s external administration powers will be enhanced, and compulsory recapitalisations and transfers will be made simpler.

We, of course, support these bills, but that does not mean that we do not have some concerns. I think there are some legitimate questions that the opposition has asked the government. Unfortunately, the government is not happy to answer those questions at this point. Some of the questions we have to ask are particularly in and around the exit to this package of bills. It is important to get the exit strategy right and the process around the exit of these bills in three years time, or sooner, if that is the case. Exiting this range of reforms is just as important as entry into them. We are spending some time making sure that the entry into this package is well constructed, and therefore the exit strategy is very important. We have asked the government to explain that. We also have some concerns in the area of risk and return, particularly the differential and how the government proposes to manage what has been the differential between AA-rated institutions and BB-rated institutions in risk and return considerations of deposits because now, with the guarantee, they have been taken away.

One of the key areas of concern that I have goes to the prudential regulations. This is a significant change. This is putting Australian taxpayers at risk. With the introduction of these bills, Australian taxpayers will be liable; there will be contingent liabilities for Australian taxpayers. To date, the government has not indicated to the House or to the Australian public any strengthening of our prudential guidelines or frameworks. I think it beggars belief that we could be moving into such a significant area, where Australian taxpayers could be potentially liable in some way in the future, and the Australian government has not indicated in any way to date how it intends to strengthen or enhance our prudential framework. I think that is an area of significant concern. It is a concern that Australian taxpayers should have. They deserve to know how they will be protected, because this is a risk that they will have going forward.

In summary, as indicated by the Leader of the Opposition and other speakers, we do support these bills, as these bills put in place initiatives which we in opposition foreshadowed and which, in the end, the government is enacting. I know that my colleagues will join with me in expressing our continuing concern about the flow-through implications of the continuing global financial crisis, and we welcome the government’s action in this regard.