EVOLUTION OF BANKING
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Responding to the global financial crisis<br />
SHAPING A NEW ENVIRONMENT<br />
There have been understandably strong responses by regulators and politicians here<br />
and overseas following the global financial crisis. In Australia it added further impetus<br />
for regulatory reform in support of the stability and competitiveness of the Australian<br />
financial services market, a key industry contributor to the wider economy. Such<br />
initiatives are especially important in a context defined by the RBA report of November<br />
2014 of an Australian economy where growth will continue to be a bit below trend for a<br />
time, picking up gradually to be a bit above trend pace by 2016.<br />
The near-term weakness reflects a combination of three forces: a sharper decline in<br />
mining investment over the coming quarters than seen to date; the effects of the still<br />
high level of the exchange rate; and ongoing fiscal consolidation at state and federal<br />
levels. In contrast, resource exports are likely to make a further strong contribution<br />
to growth, with LNG exports expected to begin ramping up over coming quarters.<br />
At the same time, very low interest rates are working to support growth of household<br />
expenditure. In time, growth of household demand and the impetus to domestic demand<br />
provided by the exchange rate depreciation we have seen since early 2013 are expected<br />
to spur non-mining business investment.<br />
The Australian scenario will evolve against a background where the major advanced<br />
economies are in different stages of the business cycle. The recovery from recession is<br />
well established in the United States, but has a long way to go in the euro area. Japan has<br />
made some progress in reducing the extent of spare productive capacity, but inflation is<br />
still some way from the Bank of Japan’s target. Nevertheless, growth of Australia’s major<br />
trading partners has actually been around average for some time now and, as best as the<br />
RBA can tell, it is likely to remain at that rate in the year ahead.<br />
All of these factors will impact the financial services sector in Australia and its<br />
regulatory landscape.<br />
Regulator’s core areas of focus<br />
Protecting consumers<br />
Regulation generates substantial costs for all<br />
financial institutions. It does, however, serve<br />
a purpose to ensure the right outcomes are<br />
generated for customers and the wider economy.<br />
Market integrity<br />
Promoting effective competition<br />
Focus on outcomes<br />
12 | The Evolution of Banking and Financial Services
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