Australia Yearbook - 2001

Chapter 26—Financial system 883
Introduction
The financial system in Australia can be
thought of as having three overlapping
components. The first component consists of
financial enterprises (such as banks) and
regulatory authorities, the Reserve Bank and the
Australian Prudential Regulation Authority. The
second consists of financial markets (for example,
the bond market) and their participants (issuers
such as governments, and investors such as
superannuation funds). The third is the payments
system—that is, the cash, cheque and electronic
means by which payments are effected—and its
participants (for example, banks). The interaction
of these components enables funds for
investment or consumption to be made available
from savings in other parts of the national or
international economy.
This chapter provides a summary of the structure
and activities of the three financial system
components as they function currently. However,
the financial system can, and does, change its
structure and activities as a result of regulatory or
deregulatory processes. The chapter concludes
with a short article outlining the main elements of
the Australian financial system in 1901, comparing
it where possible with the main features of the
system today.
Regulation
From 1 July 1998 a new financial regulatory
framework came into effect, in response to the
recommendations of the Financial System Inquiry
(the Wallis Committee). Under the new structure
a single prudential supervisor, the Australian
Prudential Regulation Authority (APRA) was
established to take responsibility for the
supervision of banks, life and general insurance
companies and superannuation funds. The
Australian Securities and Investments
Commission (ASIC) assumed responsibility for
market integrity and consumer protection across
the financial system. The Reserve Bank retained
responsibility for monetary policy and the
maintenance of financial stability, including
stability of the payments system.
From 1 July 1999 building societies and credit
unions have been supervised by APRA. From
1 July 1999 APRA has supervised benefit funds of
friendly societies under the Life Insurance Act
1995, while health benefit funds of friendly
societies are regulated by the Private Health
Insurance Administration Council under the
National Health Act 1959. Prior to 1 July 1999
building societies, credit unions and friendly
societies were regulated under State legislation.
On 1 July 2000 APRA transferred regulation of
self-managed superannuation funds to the
Australian Taxation Office.
Inter-sectoral financial flows
Diagram 26.1 provides an overview of the flows of
capital through the financial system and
summarises the end result of applying the current
statistical framework. It illustrates the net
financial flows between sectors during the year
1999–2000. The arrows show the net flow from
lenders to borrowers. For example, there is a
$22.8b net flow from financial corporations to the
household sector. There is also an $18.6b net
flow from financial corporations to non-financial
corporations. This is mainly attributable to
increased loans by financial intermediaries and
increased share purchases by financial institutions
such as life offices.