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Wednesday, 14 February 2018
Page: 1053

Senator O'NEILL (New South Wales) (11:58): I rise to speak in support of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017. The bill strengthens APRA's management powers in both preventing and responding to a financial crisis. It will provide APRA with clear powers to ensure that regulated entities are better prepared for a financial stress event. It will also strengthen APRA's powers relevant to the resolution of a regulated entity in distress. APRA's existing crisis resolution powers enable it to take control of a failing bank or insurer when needed. However, often banks or insurers are part of a complex financial group with many different contractual arrangements. The bill will enable APRA to also take control of group entities so that it also has the powers to resolve a distressed regulated entity or group quickly and effectively.

It's been just over 10 years since the onset of the global financial crisis. Indeed, it was around this time 10 years ago, in 2008, that the UK government nationalised Northern Rock bank. It was in March 2008 that the world's fifth-largest bank, Bear Stearns, collapsed and was taken over by JP Morgan. By June 2008, the Labor government had announced the introduction of the Financial Claims Scheme and the bank guarantee to provide certainty and protection to Australian banking customers. Only a few months later, in September 2008, the US government bailed out Fannie Mae and Freddie Mac, and Lehman Brothers filed for bankruptcy. They were extraordinary times.

Labor announced the guarantee scheme for large deposits and wholesale funding in October 2008 to support confidence and to assist banks, building societies and credit unions. This followed developments in international wholesale funding markets that were restricting the ability of financial institutions to access funding, with potentially serious implications for liquidity and lending activity. A few days later, Labor's first stimulus response was announced: the Economic Security Strategy, worth $10.4 billion. The second response was released in February 2009, with a further $42 billion: the Nation Building and Jobs Plan. Labor's stimulus was substantial and well-designed to support the economy and to support employment. It averted recession and it saved more than 200,000 jobs that otherwise would have been lost.

The results of Australia's economic management during that time speak for themselves. Between 2007 and 2012, Australia's increase in GDP per capita, in US dollar terms, exceeded that of any other G20 nation by more than 80 per cent. Between December 2007 and around March 2013, employment rose by 8.8 per cent despite the global financial crisis. This contrasted with significantly weaker employment outcomes in other advanced economies, including net job losses in the United States, Japan, France and Italy. Thanks to the response of the Labor government, Australia was one of only two advanced economies to actually avoid recession. The capital and skill destruction avoided in Australia was key to ensuring high levels of growth in the years following the crisis. Post-crisis employment participation in Australia exceeded levels seen in most advanced economies, including Britain and the US. As the member for Rankin noted in the other place, Nobel laureate Joseph Stiglitz, arguably one of the three or four most respected and well-regarded economists on the planet, looked at Labor's response to the global financial crisis and said it was the best in the world. He said that Labor's policies were probably the best designed stimulus package of any of the advanced industrial countries in size, design, timing and how it was spent. The member for Lilley and former Treasurer was also awarded and lauded around the world for his role during the financial crisis.

Australia's institutional frameworks put in place prior to the crisis also served us well and contributed to our relatively strong economic performance during this difficult time. These frameworks included a sound prudential regulatory regime overseen by APRA. In government, Labor recognised the need to continuously engage with financial regulators, particularly APRA, and the Australian Securities and Investments Commission, ASIC, to identify ways to strengthen further the regulatory framework that protects depositors, policyholders and other consumers of financial services. We knew that, in order to keep our financial sector strong and resilient in the face of any further external shocks, it was necessary to maintain constant vigilance.

It was Labor that kicked off some of the work that has led to the bill that we have before us today. This included the 2011 consultation paper on the Financial Claims Scheme and the 2012 consultation paper, Strengthening APRA's crisis management powers, which canvassed a large number of proposals which sought to address gaps in the framework, such as powers to address a distressed foreign bank in Australia, the ability to require restructuring of a regulated entity to facilitate resolution, and deficiencies in powers to resolve group distress. Later, in 2014, the Murray financial system inquiry recommended that the government complete the process for strengthening APRA's crisis management powers.

The experience of other countries during the GFC demonstrated that, when complex financial groups enter distress, failure to resolve these entities in an orderly fashion can lead to severe adverse economic consequences. The disorderly failure of a significant financial institution in Australia could have a severe impact on the financial system and the community more broadly. This bill aims to ensure APRA has the effective powers necessary to resolve a failing entity expeditiously in such a way as to protect the interests of depositors and policyholders and to maintain financial system stability.

In conclusion, Labor support this bill. We support Australian regulators having the appropriate powers they need to minimise the probability of a financial crisis, and, in the event that a financial institution does become distressed, we see that APRA needs to have the powers necessary to facilitate the orderly resolution of the institution. It's critical that our institutions are able to protect the interests of Australian depositors, policyholders and superannuation beneficiaries, and to protect the stability of the financial system as a whole.