International financial regulation – changes are afoot

The global economic downturn clearly showed that macroeconomic policy and prudential supervision were not sufficient to ward off systemic crisis in the international financial system. So the momentum of change has begun – but the $64,000 question remains – What does this mean for Australia, especially when it moved through the economic downturn with greater success than most Westernised countries? Indeed Australia has been praised for its resilience, so what’s next?

Recently, Professor Ian Harper from Access Economics remarked that Australia was at risk of unnecessary change since it appears that the ‘whole class was being punished because two students were caught smoking’! It is with this thought that the Institute engaged with Prof Harper and Access Economics to identify the main global reforms under consideration and how Australian authorities should respond.

The analysis, entitled Reforming international financial regulation identifies three broad responses which Australia could make to the international reform agenda. These range from fully signing up to the reforms, through redefining Australia’s regulatory responsibilities to better reflect global developments, to explicitly repudiating some of the more interventionist proposals.

I am interested to find out about your opinion and whether you agree. For mine I believe we have an opportunity to re-think Australia’s regulatory framework following the findings of the Wallis Committee in 1996-97. New rules may require a new assignment of functions among Australia’s financial regulators. Through this process we must not lose sight of the overall goal which is to keep the financial system more stable and less prone to crisis.