Proper review: David Murray says the financial system has moved on from Wallis. Photo: Nic WalkerThe former chief executive of Australia’s biggest bank says he would consider chairing a review of the country’s financial system if he were asked.
David Murray, who steered the Commonwealth Bank through privatisation in the 1990s, says it is time for a proper review of the financial system, given the last review was nearly two decades ago.
His comments come after Joe Hockey, the shadow treasurer, last month said the Coalition would begin a comprehensive review of the country’s financial system if it won the federal election.
”The last review by [Stan] Wallis recommended that a review be done within 10 years,” Mr Murray said. ”The system changes a lot, and the question to be asked isn’t how [do] you regulate everybody as much as how does the economy get funded. And what is fundamentally different today is the size of the superannuation investment pool, and how that gets re-intermediated in the economy.”
The last comprehensive review of Australia’s financial system – the Wallis Review – took place in the mid-1990s, and reported in 1997 to then treasurer Peter Costello.
The biggest changes stemming out of Wallis were bringing about the so-called three peaks of regulation. Here regulatory functions were split between the Reserve Bank of Australia, securities regulator the Australian Securities and Investments Commission and the creation of the Australian Prudential Regulation Authority.
This went against the grain of other modern economies where the trend had been for banking regulators to be rolled up into a mega-prudential regulator. The review came just four years before the multibillion-dollar collapse of HIH Insurance in 2001.
”[The Wallis Report] set up a structure [for the financial system] and then soon after that we had HIH which forced the government to act on some aspects of the structure that needed reconsideration,” Mr Murray said.
”After that John [Laker] took over the central role at APRA and his more scientific method of supervision has served them well.”
Opposition spokesman on finance Joe Hockey has for the past few years been calling for a ”root-and-branch” review of the architecture of Australia’s financial system.
The Federal Treasury has also said that a comprehensive review of the country’s financial system regulatory framework was needed in the wake of the global financial crisis.
Mr Murray, who is the former chairman of the Future Fund, also said Australia’s three main financial institutions – the Reserve Bank, Treasury and the Australian Prudential Regulation Authority – should continue to balance transparency, independence and accountability, but that government needed to be more transparent about its dealings with the agencies.
”If you look at the lead-up to the global financial crisis and the post-crisis period, governments find it too easy to say, ‘Well, the central bank’s independent’, or ‘The numbers are from Treasury,’ or ‘The bank supervisor is independent’,” he said. ”[But] the reality is that the government remains accountable for the outcome.”
Mr Murray said if he were asked to chair a review of the financial system he would give it ”careful consideration”. He also said he believed business confidence would pick up after the election if the election delivers a stable majority government.
And the new government would have to drive a productivity agenda that started to deal with the high cost structure of the economy.
The original release of this article first appeared on the website of Shanghai Night Net….