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Monday, 12 February 2018
Page: 1002

Mr GEE (Calare) (17:43): I rise to support the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017. It was interesting listening to speakers on the opposite side of the chamber looking back at the history of the global financial crisis with rose-coloured glasses and giving themselves a pat on the back about how they averted a recession, whereas many hardworking Australians will remember it as the time of those opposite talking about 'Rudd money' and billions of dollars being handed out to not very much economic effect and not the glorious time in Australia's economic history that those opposite are now painting it to be.

This is an important bill which will strengthen our financial system and, therefore, our economy. The experience of other countries during the global financial crisis demonstrated that, when financial groups enter distress, failure to resolve these entities can lead to severe economic consequences and that it has to be done in an orderly and controlled way. The US experience, in particular, was very instructive. During critical moments in their attempts to resolve complex entities such as Bear Stearns and Lehman Brothers, the US government was impeded by resolution powers being inadequate or uncertain, and that just fed into the whole crisis. There was a similar story in the UK, which experienced a crisis of its own and had to deal with inadequate powers of resolution with respect to certain entities.

So, to achieve the best chance of effective resolution in these situations, it's essential for regulators to have access to flexible, timely and robust resolution powers. Whilst we disagree on the history of the aftermath of the global financial crisis in Australia, I think that at least we do agree that this bill is both timely and needed. Strong resolution powers need to be balanced with adequate compensation measures for stakeholders who are disadvantaged by the exercise of these powers. If the exercise of any of APRA's resolutions powers leads to acquiring of rights other than on legal terms, the legal framework requires compensation. This strikes the appropriate balance.

A review conducted by the Council of Financial Regulators examined the adequacy of Australia's resolution powers. This review took into account domestic and international developments such as the work of the Financial Stability Board, or FSB. This review found that, while APRA has a reasonable set of existing tools, significant gaps existed—in particular, the ability to resolve distressed groups; secondly, the ability to require restructuring of a regulated entity to facilitate a resolution; and thirdly, the ability to address a foreign bank branch in Australia. Proposals to address these gaps were outlined in detail when the government's December 2012 consultation paper was released entitled Strengthening APRA's crisis management powers. Crisis resolution is the process by which APRA manages or responds to situations in which the ongoing viability of a bank or insurer is in jeopardy. The global financial crisis clearly demonstrated that it's particularly difficult to ensure the effective resolution of a failing entity that is part of a wider group of companies. The structures of financial groups can be complex, involving numerous business lines and support services linked through different ownership and contractual arrangements. It may not be clear how different members of the group are linked and what critical interdependencies operate within that group. The ongoing provision of critical intragroup services is therefore vital to achieving effective resolution and outcomes in these situations. Understanding the position of a failing regulated entity, disentangling its affairs from those of the rest of the group and ensuring it can be resolved quickly, effectively and expeditiously present considerable challenges. In the absence of effective group resolution powers it may be particularly difficult to resolve a distressed regulated entity or group quickly at all.

This bill will ensure that Australian financial regulation is suitably keeping stead with development in international standards in resolution. The Australian government is committed to ensuring that, should a crisis strike a bank or insurer, the impact on the Australian economy and taxpayer is minimised and will be minimised, and that APRA is required to protect the interests of depositors and insurance policy holders and the stability of the financial system. I commend this resolution. I commend the bill to the House because I think it will greatly add to the confidence that the Australian public and the international community has in the Australian financial system. That can only be a good thing. Nobody wants to see another global financial crisis. But, if the experience of years gone by has told us anything, it tells us that trouble can strike again, and it can strike at unexpected times. So the time to prepare for crisis and trouble in the financial sector and the global economy is now. I think the government is right to be taking this action. It is a responsible action. It's the right thing to do. It has very strong support across various sectors. I commend this bill to the House.