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1、Normal Normal Issues in the Financial System Address by Bill Beerworth to the Australian Institute of Company Directors Perth Wednesday 11 December 1996 2 INTRODUCTION The Financial System Inquiry published a few weeks ago a Discussion Paper, detailing the key issues and regulatory options being con

2、sidered. It is intended to contribute to public discussion of possible reforms in our financial system. Our Discussion Paper does not provide preliminary or draft recommendations. Essentially there are two reasons for this. Firstly, it is unnecessary for the sake of this stage of public discussion t

3、he options and arguments are clear enough from the array of submissions made to the Inquiry, and from the way we have described them in the Discussion Paper. I would like to emphasise that we are meeting the Treasurers commitment to an open, public process. Our Discussion Paper draws on more than 26

4、0 submissions, most of which have been made public, including through the Internet. The Discussion Paper is the basis for public consultations which we are holding in mainland capitals, and for any further written submissions which people wish to make by the 13th of January. It is available through

5、Government bookshops and through the Internet on the Inquirys home page. It indicates to the interested public what we see as the issues, and where we are focusing our further research before making our recommendations. The second reason why we have not put draft recommendations in the Discussion Pa

6、per is that we have wanted to use all of the available 9 months to form our recommendations, and not shorten that period to 5 months. We will make our recommendations in the Inquirys Final Report, which we will submit to the Treasurer by the end of March, as requested. BACKGROUND TO THE INQUIRY I wo

7、uld like to draw your attention for a moment to the background in which we are inquiring into Australias financial system. The basic objectives of our Inquiry are similar to those of the Campbell Inquiry at he beginning of the 1980s. Both Inquiries address efficiency in the interest of the rest of t

8、he Australian economy, competition concerns, consumer interests and the regulatory framework. However, the situation before the Campbell Inquiry was characterised by the fairly obvious ineffectiveness of some price-control regulations, and some fairly obvious structural inefficiencies. The situation

9、 before this Inquiry was different. There were less obvious, but still pressing, reasons for review a rapidly changing environment, an insufficiently coordinated regulatory framework, and concerns about Australias standing in regional and global markets. 3 Another factor in the situation before this

10、 Inquiry was an on-going public debate about the effects of the financial deregulation of the 1980s. They are an important part of the 1990s situation, which our Inquiry is addressing. An analysis of the effects of the 1980s deregulation and the lessons to be learnt from it the stocktake included in

11、 our terms of reference is well advanced and will form part of our Final Report. A CHANGING SYSTEM For a long time the financial system has been shaped, or reshaped, by globalisation, technology, evolving profiles of what consumers need, and new forms of competition. But in recent years, some of the

12、se changes have accelerated. The application of new technology may revolutionise our financial system more quickly than some expect. Most of the foreseeable developments involve existing technologies, and their impact in some other countries is already more advanced than in Australia. Not all of the

13、m rely on customers accepting new technologies a lot of what is happening is in the back office. This helps us to know the outline of what is likely to happen here as the financial system develops. It is clear that we must respond and ensure that we take the greatest possible advantage from the pote

14、ntial being unleashed. Another important driver of change in the financial system is change in the profiles of consumer age-groups and needs. Australia is facing an upward shift in the age profile of the population. But unlike most comparable countries, we face this with a relatively low rate of nat

15、ional savings. This presents an obvious challenge in the future funding of a growing proportion of retirees. That funding must rely less on transfers through government and more on peoples own savings for retirement. From this perspective, while it is vital that our savings rate be increased over ti

16、me, it is also important that the financial system be as efficient as possible at investing superannuation savings, and that investment products be developed that fulfil the needs of those saving for their retirement. This is one aspect of a more general fact. The financial system stands between sav

17、ings and investment, and its cost and performance help determine the gains we make throughout the economy from the processes of saving and capital accumulation. The real costs of this process of financial intermediation are hidden. Nonetheless, these costs are extracted from household and business s

18、avings in the course of their being invested. Even a small improvement in cost-efficiency in our financial system can be expected to have substantial, widespread effects. The experience of a changing financial system is by no means unique to Australia. Other countries with developed financial system

19、s are facing the same changes, and are thinking similarly about the best policies and regulatory responses. Most countries are also seeking the benefits of increasing exposure to global trade and investment. They realise that financial systems contribute to the competitiveness of 4 national economie

20、s. This parallel process of change and reform in other countries enforces the need for us to strive for world-best practice in the Australian regulatory framework. We could sum up the situation by saying there are 3 key reasons for wanting to improve our financial system : the need to obtain the ben

21、efits of new technology; the need to increase investment returns through more efficient management of financial resources; and the need to compete globally. KEY GOALS AND MEANS We see as our key goal the identification of means to increase the efficiency of the Australian financial system, without c

22、ompromising its safety and stability. In important areas, Australia is lagging behind the market performance of some other nations: many products or services are more expensive than those abroad; and rapid innovation is occurring in some but not all areas. We believe the keys to increasing the effic

23、iency of the financial system are greater competition and contestability which means more vigorous competition among existing participants and more opportunities for competition from new participants. We are looking for ways to bring this about through more efficient regulation. Our search for incre

24、ased efficiency in the financial system is motivated not by the interests of participants in the financial industry, but by the prospect that a more efficient financial system would bring greater benefits to customers. Improvements in financial system efficiency would benefit customers through lower

25、-cost financial intermediation, adding to the returns for savers or reducing the costs for borrowers; through increased economic growth; through greater choice in products and services; and through a wider array of channels for access to financial services. While the Discussion Paper does not contai

26、n recommendations, you will find in it a clear identification of the priority issues as we see them. Let me summarise 6 of these priority issues, and then, for the remainder of this address, say something about each of them. 5 PRIORITY ISSUES The priority issues are: stimulating competition and inno

27、vation, achieving more competitive financial markets in Australia, achieving more cost-effective consumer protection, preserving systemic stability and clarifying depositor protection, maintaining industry structures for competition and efficiency, and achieving better performance and co-ordination

28、of the regulatory arrangements. STIMULATING COMPETITION AND INNOVATION The first of these issues is about asking how competition and innovation in the Australian financial system can be stimulated, without compromising the safety of the financial system. We have several areas in mind. One is the are

29、a of traditional banking activities, including the payments system. The Discussion Paper asks about the feasibility of a policy of allowing an increased range of institutions to provide some or all of the core financial services. Our regulatory structure is a creature of history. Its licensing, owne

30、rship and prudential rules are largely based on institutions, and separate institutions for banking, insurance and securities dealing. This may be inadequate for likely market developments, with more institutions offering products which combine different services, and more institutions wanting to cr

31、oss-sell the products or services of different entities. This is the frequently mentioned issue of Convergence. With this in mind, we are examining the impact of the regulatory system on competition among the traditional financial institutions, and the extent to which it restricts potential competit

32、ors notably the firms which operate globally in providing selective, specialised services. One policy option in this area which we are examining is to relax some of the ownership restrictions on banks. Another is allowing direct non-bank access to the payments settlement system, subject to appropria

33、te prudential tests. And a further one is to make a better accommodation of financial conglomerates. Each of these options has been canvassed in some of the submissions made to the Inquiry. 6 ACHIEVING MORE COMPETITIVE FINANCIAL MARKETS We share the concerns expressed in recent public discussion about the international competitiveness of Australian financial services ind