International Law

Reserve Bank Financial Stability Review: Crisis Management Arrangements

The Reserve Bank's March 2008 Financial Stability Review gives an overview of the global financial environment and Australia's financial system concluding with a discussion of crisis management arrangements, ADIs? liquidity management policies and proposed regulation of mortgage brokers.

The Review discloses that the Council of Financial Regulators has been reviewing aspects of Australia?s arrangements for the management of a financial crisis in the light of UK's Northern Rock experience. It discusses 2 particular areas:

arrangements in Australia would be enhanced by the establishment of a scheme to repay depositors in a failed authorised deposit-taking institution (ADI) in a timely fashion. Under the existing legislation, depositors rank ahead of other creditors in a failed ADI, although they are likely to have to wait some time before they could be repaid. Given this, the Council is working on an Early Access Facility, which would provide early repayment of up to $20 000 per depositor in a failed institution; it is estimated that this cap is sufficient to cover the entire deposits of around 80 per cent of depositors...

reviewing APRA?s powers for dealing with a distressed financial institution. While these powers are more extensive than those available to the Financial Services Authority in the United Kingdom, the Council has recommended legislative changes that would give a statutory manager appointed by APRA additional powers, and provide APRA with greater flexibility in arranging a takeover by, or a transfer of assets and liabilities to, another ADI in a timely fashion.

Full post as published by Australian Regulatory Compliance Review on March 30, 2008 (boomark / email).