Australia Banking Industry

Paper Summary:

This paper reviews the issue of deposit insurance banking in Australia. According to the paper, Australia does not currently have systems of financial regulation which include deposit insurance. The paper discusses the recommendation made by Australia's Council of Financial Regulators (CFR) to introduce a deposit insurance scheme.

Outline:
Introduction
Current Regulations of the APRA/ Powers of the APRA
Explicit Deposit Insurance - Advantages
Explicit Deposit Insurance - Disadvantages
Disadvantages of Explicit Deposit Insurance
Does Australia Need the System Proposed by the CFR?
Summary and Conclusion

From the Paper:

"According to the government in Australia who has identified an issue that it states "would arise on closure of a distressed financial institution, it has also identified an issue which would arise on closure of a distressed financial institution. In these circumstances, there is currently no mechanism for providing depositors/policy holders with access to their funds on a timely basis. While the relevant legislation give depositors/policyholders first claim on the assets of a failed institution, it makes no provision for timely payments. Given the lengthy nature of the wind-up process, it could take many months, or even years, before funds are available for distribution." (Council of Financial Regulators - Failure and Crisis Management in the Australian Financial System 2006) This would be expected to results in financial hardship for many homes and businesses and place a great deal of pressure on the Government to "do something". (Council of Financial Regulators - Failure and Crisis Management in the Australian Financial System, 2006) The Council states that this "is an inappropriate outcome both for the more vulnerable members of society" (Ibid) as well as for the Government. The Council states that it is: "not attracted to the cumbersome pre-funded deposit insurance and financial system guarantee schemes found in other countries."

Sample of Sources Used:

• Hogan W., Avram K., Brown C., Degabrielle R., Ralston D., Skully M., Hempel G., Simonson D.,and Sathye M., (2004) Management of Financial Institutions. 2nd ed. Wiley. Milton, Australia".
• Council of Financial Regulators (2005) Failure and Crisis Management in the Australian Financial System. The Treasury, Commonwealth Government of Australia. November.(http://www.treasury.gov.au/documents/1040/PDF/Crisis_Related.pdf
• Saunders, Anthony and Marcia Millon Cornett; (2006) Deposit Insurance and other Liability Guarantees. Chapter 19 in Financial Institutions Management - A Risk Management Approach. 5th ed.. McGraw-Hill/Irwin, New York. (Note these authors have published numerous texts with similar titles which also include a similar discussion of deposit insurance.)
• Ketcha, Nicholas J. Jr (1999) Deposit Insurance System Design and Considerations. Strengthening the Banking Systemin China: Issues and Experience. BIS: Policy Papers No.7.(http://muso.monash.edu.au/webct/cobaltMainFrame.dowebctJSESSIONID=G5bd50ynl2jTlnm1vB2p11qXrshV4TQJzl421gchVQk2CbWF09pT!1373162356!380553388.
• Thomson, Di, and Malcolm Abbott. 2001. Banking Regulation and Market Forces in Australia. International Review of Financial Analysis 10, no. 1:69-86.

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